The September inflation report was just released by the U.S. Bureau of Labor Statistics showing historically high levels of annual inflation, with the all items index 8.2 percent higher than last year.
This most recent data is similar to inflation levels reported in each month in 2022, which have consistently shown the annual all items index at a record 40-year-high.
However, this figure does not reflect the actual cost of inflation felt by consumers because of methodological changes in government inflation calculations that began in the early 1980s. If the U.S. used the reporting method that was in place before federal officials changed the system to artificially deflate the figures, the current inflation rate would appear much higher.
“I’m putting these numbers together and for September, it would be 16.4 percent today, year-over-year headline,” John Williams, Economist and Founder of Shadow Stats, told Timcast in an interview.
In the early 1980s, inflation hit 14.73 percent, which Williams says triggered congressional action to artificially depress that number due to deficit concerns.
Soon after, federal officials changed the inflation calculation and stopped tracking mortgages and other housing costs. Instead, they began using a system that factored in “owner’s equivalent rent” to make it appear as if overall inflation was significantly less.
Some have disputed the reason for the change and the degree to which it may have affected inflation numbers, but Williams claims the new methodology was to improve government metrics.
“The expressed purpose was to reduce the federal deficit, due to increases in the [Social Security] cost-of-living adjustments that were being caused by this terrible inflation,” he stated.
Williams, who has over 30 years experience as a private consulting economist who specializes in government economic reporting, wrote at Shadow Stats:
The plan was to reduce cost of living adjustments for government payments to Social Security recipients, etc. The cuts in reported inflation were an effort to reduce the federal deficit without anyone in Congress having to do the politically impossible: to vote against Social Security. The inflation-calculation changes had the further benefit to government fiscal conditions of pushing taxpayers artificially into higher tax brackets, thus increasing tax revenues. The changes afoot were publicized, albeit under the cover of academic theories. Few in the public paid any attention.
“Then, [inflation] came down rapidly thereafter,” he explained to Timcast. “I wouldn’t be shocked if they say they’re going to change it again.”
During the mid- through late-80s, after the new methodology was implemented, the U.S. began to see a divergence between the prior annual inflation measurement and the updated figures.
Social Security benefits are among the few types of retirement income adjusted for inflation. Federal officials just announced — on the same day the September 2022 inflation report was released — that the government will increase Social Security benefits to 8.7 percent.
This represents the highest cost-of-living adjustment for the entitlement since 1982, when the U.S. government began the process of changing inflation measurements — a time during which benefits were raised 11.2 percent.
The New York Post reported that the U.S. government will send out more than $1 trillion in payments for benefits in 2022.
The 8.7 percent Social Security increase for 2023 will cost U.S. taxpayers roughly $100 billion. If the government had not changed its methodology for determining annual inflation, it would cost taxpayers nearly $200 billion dollars, which, according to Williams, is part of the reason government officials changed it in the first place.
“That’s a big bite [of] our of the government’s revenues,” he said. “It makes the deficit look worse.”