Official inflation statistics dramatically understate the true rate.

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Origin: As long as currency has existed there have been theories about it. The more recent iterations have been borne out of claims by experts like John Williams at Shadowstats that the government has reconfigured the CPI to understate inflation, and claims that the Federal Reserve's use of core rather than headline inflation leads to underestimation of the real rate and policy error.

The reality: First, the CPI. Williams asserts that the incorporation of a substitution effect by the BLS in their calculation has lowered estimates by an average of 2.7 percent year over year in an effort to reduce Social Security payments.

But according to the Bureau of Labor Statistics, his assumptions and numbers are both entirely wrong. The full explainer by the BLS on the subject is worth reading, but here are the main points. Rather than assuming that consumers will substitute between, for example, steak and hamburger, the BLS formula assumes that consumers will respond to price variations within close substitutes in a particular regional category, like "apples in Chicago.

The effect of the incorporation of the geometric mean for substitution has been an approximate .28 reduction in the CPI year over year.

Secondly, the Fed uses a measure of core inflation (similar to the CPI less food and energy) because its decisions are anchored on future expectations of inflation. Energy and food prices can be volatile. Basically, this criticism arises from a difference in what consumers think of as inflation, and what economists think of as inflation in the context of monetary policy.

*Williams responded to the BLS article on CPI misconceptions in a post. He wrote, "I stand by and am extremely comfortable with my previously expressed positions and published numbers."