Your Own Personal Inflation Rate

‘Inflation is as violent as a mugger, as frightening as an armed robber, and as deadly as a hit man.’
– Ronald Reagan
‘To me, a wise and humane policy is occasionally to let inflation rise even when inflation is running above target.’
– Janet Yellen
The US economy grew at a 1.5% inflation-adjusted rate in the third quarter, or so said the Bureau of Economic Analysis in its first GDP estimate last week. The number is subject to revision and will probably change. Based on recent experience, revisions could easily push it below 1% or above 2%. Since this is ‘real’ GDP, it also depends on inflation numbers. BEA doesn’t use the familiar Consumer Price Index for this purpose – CPI comes from an entirely different agency, the Bureau of Labor Statistics.
You can get quite different real GDP growth numbers if you use the inflation figures calculated by the Dallas Federal Reserve Bank. The Dallas Fed developed something called trimmed PCE, the use of which would make real 3Q GDP growth 1.1%. Or, if we all decided that the calculation of ‘median CPI’ performed by the Cleveland Fed was what we should use, then GDP growth was about 0.3%. (Which is of course why we don’t use it!)

This post was published at Mauldin Economics on NOVEMBER 1, 2015.