Analysis: CPI Manipulation Fears Overblown
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- Mark Hulbert reports that financial advisers are increasingly fielding client questions about whether the government is understating inflation, given that the CPI drives Social Security's annual COLA and TIPS interest payments.
- Alberto Cavallo, a Harvard Business School professor and former member of the BLS technical advisory committee, says significant tampering with inflation data would likely be easy for outside researchers to detect.
- Cavallo said he identified Argentina's 2007 inflation data manipulation as a Ph.D. student with limited resources, and pointed to PriceStats, now part of State Street, which has tracked daily inflation in 25 countries since 2011.
- The BLS has made over two dozen CPI methodology changes in the last 50 years, but retroactively applying the original methodology would only reduce annualized CPI growth by 0.2 percentage points over that span, per agency calculations.
- Claims by some commentators that current inflation would be 6-8 percentage points higher without those methodological changes are wrong, according to the BLS data cited in the piece.
- The elderly-focused CPI-E has appreciated just 0.21% annualized faster than the CPI-W used for Social Security COLAs over the past four decades—a gap equal to roughly $4.37 on the current average monthly Social Security check.
- Hulbert's bottom line: investors should focus on how fast the CPI will rise in coming months rather than worrying whether the index accurately reflects what it claims to measure.
Why it matters: For retirees convinced the COLA understates their real cost-of-living increases, the elderly-specific CPI-E outpaces the COLA-linked CPI-W by only 0.21% annualized—about $4.37 per month on the average benefit—while the broader cross-check against PriceStats data and BLS retro-methodology calculations undermines the claim that the CPI is being systematically understated for political gain.
