Tags: CPI | inflation | car | govt

Official Inflation Rate Understates New Car Inflation By 300

Wednesday, 10 Jul 2013 07:44 AM

By Michael Carr

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Inflation measures reported by the government include a number of adjustments. Some of these adjustments account for increases in quality, which government economists believe should not be included in the rate of inflation.

While they raise costs for consumers, quality improvements are not inflationary to government economists.

New cars may be among the best examples of how government adjustments distort the true impact of inflation. According to the Consumer Price Index (CPI), the cost of a new car has increased by 46 percent since 1983.

The U.S. Department of Energy also provides information about the costs of new cars, and their data show a much different picture. According to this government source, the price of a new car has increased by 188 percent in the past 30 years.

Consumers might agree with the Department of Energy data. In 1983, the average new car cost about $10,600. The average purchase price of a new car is about $30,500. According to the Bureau of Labor Statistics, the majority of that increase is due to quality improvements rather than inflation and is therefore not included in the CPI.

Assumptions about quality improvements have made the CPI an unreliable measure of inflation for the average family. Yet this measure is used to determine changes in Social Security benefits and a variety of other government programs.

It is true that a new car in 2013 is much safer than a new car in 1983 was, but the consumer is paying for those features. With the adjustments to CPI for this and other items, there is no way to accurately gauge inflation using data provided by the Bureau of Labor Statistics.

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