Too Many Dollars, Too Few Dollars

What is the real rate of inflation? The official Consumer Price Index (CPI) is calculated with a basket of goods that are supposed to reflect the economy as a whole. There are over 200 categories of consumer goods that make their way into the CPI, including health care, airline travel, clothes, education, and so on. The price of this basket of goods is checked from one month to the next and it’s all added up to produce the CPI.

There is one big problem with this, however – not everyone buys the same goods. On average, over the whole economy, it’s about right. But people who have very little money don’t fly, go to the doctor as often, pay for school, and so on. Charles Gave of GaveKal Dragonomics came up with his own measure of inflation, modeled for the poor, and found some surprising results – and a correlation that spells trouble for the nation’s poor for a long time to come.

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