One response of inflation-fearers to the absence of the inflationary outburst they’ve been waiting for is to reject the numbers, and claim that the BLS is hiding a much higher rate of inflation than the official numbers say. You see that a fair bit in comments, and some credulous mainstream figures (i.e. Niall Ferguson) have also bought into this story. How do we know that it’s wrong?

One answer is that people I know work with the BLS, and they really are doing the best they can. But that won’t convince the skeptics, since I am presumably also part of the conspiracy. Bwahahahaha.

Another answer is that if inflation is much higher than reported, real GDP and real wages must have been plunging in recent years. That’s inconsistent with everything else we see, which corresponds to an economy with slow but positive growth.

But there’s a third answer: we now have price measures calculated independently by people not in the government — in particular, the MIT Billion Prices Project. The BPP collects prices from the internet; this means that it’s not a perfect match for the consumer price index, which includes things such as services that are generally not sold online. But if inflation were much higher (or much lower) than reported, you’d expect to see a big divergence between the independent index and the official stats.

But you don’t:

Forty months into the project, the BPP shows a price rise about a third of a percentage point higher than the CPI. That’s around 0.1 percent higher inflation on an annual basis — i.e., essentially nothing.

Sorry, folks, but there’s no grand conspiracy to hide inflation.