Yahoo Finance had this article on health insurance premiums rising 6.1% this year and this just reinforces my notion that real inflation is totally out of control and likely to be made worse if the Fed lowers rates next week. I qualify this with the word realร‚ย  inflation because the skewed statistics released by various government agencies are so out of whack that they’re meaningless.

Years ago, inflation was measured against a basket of goods so that a person could understand how much the cost of something had gone up. For example, in 1990 a steak might have cost $1.23 /lb and in 1993 in might have been $1.50/lb but sometime during the Clinton administration, “substitution” was allowed which meant that if steak had gone up to $2.99/lb then the average family would “switch” from steak to hamburger so the inflation report was adjusted to reflect the cost of a lb of ground beef vs. cost of 1 lb steak. At some point, people might be expected to eat a can of dog food so the government can easily report that inflation is under control.

The madness doesn’t stop there though because inflation reports are broken down into even more meaningless subsets of inflation such as “core” inflation. What is “core” inflation?

According to Investopedia “Core” Inflation is,

A measure of inflation that excludes certain items which face volatile price movements. Core inflation eliminates products that can have temporary price shocks because these shocks can diverge from the overall trend of inflation and give a false measure of inflation.

The most often removed items from the report because of “volatility” are energy and food but it can be anything that makes inflation reports look bad and some things (like health insurance, medical expenses or college tuition) are never factored in!

The world is hoping for and cheering the Fed to lower interest rates and the Fed may finally cave in to such demands but if the rate is lowered it will have long term negative consequences for everyone. You may be happy to see stocks rally on Sept. 19th after a Fed rate cut announcement but you’ll be paying dearly for it every day you go shopping.