What is Reported inflation?
Reported Inflation is the inflation rate that governments publicly report. The objective of these reports is to demonstrate how the country is meeting its inflation target (typically around 2% per year) by carefully selecting data that suggest that the target was met. This careful selection of data requires a modified approach year-over-year.
What is Real Inflation?
Real Inflation is, as the name implies, the real inflation determined by more scientific individuals and organizations who seek transparency and truth. The objective of these reports is to determine what the real inflation rate is using a consistent approach year-over-year.
How is inflation calculated?
Both reported and real inflation calculations use data a \”basket of goods\” which is a list of commonly used products and services. The prices of this basket of goods is used with some basic calculations to determine Consumer Price Index (CPI).
What is the current Reported Inflation in the USA?
https://tradingeconomics.com/united-states/inflation-cpi
What is the current Real Inflation in the USA?
http://www.shadowstats.com/alternate_data/inflation-charts
Why is Reported Inflation always less than Real Inflation?
This is because countries want their inflation to appear low. Appearing to have low inflation allows countries to appear more creditworthy and stable to countries and other spectating organizations around the world.
Why aren\’t countries more scientific / accurate about their inflation numbers?
These inflation reports are critical inputs to those country\’s valuations of their currency.
Who has the ultimate say on the value of a country\’s currency?
The International Monetary Fund (IMF) has the ultimate say on the value of a country\’s currency. Every time a country has a collapse of its currency, it is initiated with their failure to defend their currency.
Sources:
Bloomberg Market Concepts (BMC) https://www.bloomberg.com/professional/product/bloomberg-market-concepts/