Calculate Your Pay Cut With Truflation

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Has inflation grown faster than your pay?

CPI-W — The US Government Measure for Inflation

Each year the government calculates how much social security payments will go up based on the CPI-W, the Consumer Price Index for Urban Wage Earners and Clerical Workers. This year in January the CPI-W generated a 5.9% cost of living adjustment to social security recipients. But did that increase cover actual inflation?

If your pay raise was less than inflation over the last year, you in effect received a pay cut. Your income now buys less goods and services. If inflation per the US government was 6%, and your pay raise was 3%, you took a 3% hit to your purchasing power.

CPI-W is Inaccurate

The CPI-W looks at the price of housing, automobiles, and a basket of food and clothing items and also services. For 2020 it was roughly 15.1% food, 39.9% housing, 2.6% clothing, 21.9% transportation, 7% medical care, 4.4% recreation, 6.2% education and 2.8% other.

There are flaws in the CPI-W. One is that as products are downsized they are dropped from the calculation. If a box of 15 donuts becomes 12 donuts, it drops from the calculation. Commonly, this is going to be a way prices increase. Dropping the product shrinkage from the calculation hides inflation.

Overall CPI-W is a trailing indicator. One reason for this is the way rent is accounted for. Every six months renters are polled to see if their rent has gone up. Waiting six months to poll is inaccurate all by itself. Often renters are in multi-year leases where rent cannot go up. Landlords raise the price of new units immediately, and new renters pay the higher price while existing renters have some time before their lease expires and the rent goes higher. Rent on new units has already risen, but it could be many months or several years before it impacts CPI-W.

Truflation, a Better Inflation Tracker

That is why we need Truflation, a more real-time way of measuring inflation. Updated daily, Truflation uses block-chain technology to record data publically in a way it cannot be altered or manipulated. While the US government has incentives to have the lowest CPI possible to save on social security payments, Truflation is just trying to get the numbers right.

Truflation uses a better measure of property values from Pennsylvania State University that is updated monthly instead of every six months. It also polls a larger segment of the housing market for more accurate data.

Food is another place that CPI-W is a lagging indicator. Once the price of soy, corn, wheat, etc… goes up, it can be awhile before the packaged producers increase their prices to cover that increase. Truflation uses daily commodity prices to track the price of food in a real-time way.

While March CPI-W numbers are showing around 8% inflation, Truflation’s calculation is much higher at 12.08% — 50% higher in fact.

The pain out there is greater than the official government numbers, especially if you have rent that isn’t fixed, or you have to buy a house in this ridiculously inflated housing market. Years of underbuilding houses and massive demand for bigger “work from home” spaces away from urban centers, has resulted in a truly breathtaking surge in housing prices. Rental price increases are on their way as leases expire.

While I believe inflation is likely to moderate in 2021, you should keep an eye on it and push your employer to keep pace with pay increases. Inflation does not need to be one more excuse for the already wealthy to take an ever bigger slice of the economic pie.