ITH, -The statistical massaging doesn’t stop with hedonic indexing. The government can inflate the GDP numbers in other ways. For example, GDP is measured in dollars then the government subtracts the inflation numbers to arrive at real economic growth minus inflation. In the first quarter, the annualized inflation rate was 2.4%. Then in the second quarter, the inflation rate miraculously dropped to 0.8%. Does anybody really believe that the inflation rate dropped by two-thirds in one quarter?—a time when oil prices hovered above $30 a barrel for almost the entire quarter, a time when natural gas prices remained stubbornly above $4, when insurance premiums are jumping double digits, and food prices are escalating? By lowering the inflation rate, the government was able to make the GDP numbers look better. Remember, the inflation rate is subtracted from the GDP numbers. A higher inflation rate reduces GDP. Want a higher GDP number? Just lower the inflation rate. This kind of statistical tinkering made the jump in last November and December’s oil and gas prices come in as reduction in energy prices rather than an increase. This is the kind of statistical wizardry that is starting to make U.S. economic numbers as untrustworthy as corporate profits. The smart money doesn’t believe these numbers, nor should you.
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