What are the real inflation rates?

inflationI was having a discussion with my Dad about inflation rates the other day. He gave an apparently arbitrary figure – 6% – as the benchmark for inflation rates. Checking in on the official consumer price index inflation rates in the UK – calculated by checking the average price increases of a list of 600 commonly purchased household items – has only put the rates beyond 4% a few times in the last 10 years or so.

I then discovered Shadowstats – an ‘alternative’ set of estimates:

The SGS Alternative CPI-U measures are attempts at adjusting reported CPI-U inflation for the impact of methodological change of recent decades designed to move the concept of the CPI away from being a measure of the cost of living needed to maintain a constant standard of living.

They seem to be somewhat on the doomsayer side of things and, well, total economic doom hasn’t quite hit yet (they predicted hyperinflation would start in "the next couple of months" in December). They do have a point, though, in that many items not in the typical consumer price index have become expensive at a far greater rate than inflation – amongst them housing and (apparently) public school education. Now, not everyone needs the latter, but the former, arguably, is probably the single most essential item you could have in your proverbial basket.

So I don’t know quite what to believe. Adding one or two percent to the official estimates on inflation rates doesn’t feel quite so pessimistic when you read the SGS Alternative CPI-U, which puts it at 3-4x the reported rates of inflation.