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Monday, February 24, 2014

New Inflation Index Refutes Government CPI Numbers

The Dent Inflation Index was introduced earlier today by Dent Research, a leading economic forecasting and investment research firm. This key economic measurement strips away questionable components and breaks down the data to provide a more realistic indication of inflation among different age groups in the United States.

According to the Bureau of Labor Statistics (BLS), the Consumer Price Index for all Urban Consumers (CPI-U) — the most commonly used gauge of inflation — increased 0.1% for January 2014 and 1.56% during the previous 12 months. However, the Dent Inflation Index created by Rodney Johnson, co-founder of Dent Research, reveals that over time, inflation varies widely by age. This occurs because spending habits change dramatically as people get older. For example, younger people are more strongly affected by inflation in education, whereas older people are more severely impacted by inflation in medical costs.

In the recent numbers, the 25 to 34 age group has had the most significant divergence from the official BLS numbers. Over the last year, prices have risen only 1.06% or half of a percentage point lower than the official year-over-year number. While a half of a percent may not sound like a big number, it can represent billions of dollars in the consumer spending.

The specific rate of inflation over the past year for each age group was:
 *Age Group* *Inflation Rate*
  < 25  1.17%
  25-34 1.06%
  35-44 1.09%
  45-54 1.20%
  55-64 1.19%
  > 65  1.32%
In addition to using one simple statistic to indicate inflation for everyone, the BLS also includes housing as a large percentage of the CPI, even though this cost does not change during the year for most consumers. Shelter (i.e., mortgage and rental costs) constitutes 32% of the CPI-U, yet more than 60% of households own their home and therefore do not experience fluctuations in their "cost" of housing. As a result, most consumers tend to disregard these costs when calculating how their spending must change during the year. Therefore, the government's inflation measure is unfairly anchored to this relatively non-discretionary expense.

"In an environment where information is only as important as its accuracy, Dent Research peers past government data-massaging to show what is really happening," said Rodney Johnson. "That is why the Dent Inflation Index, Dent GDP Index and Dent Unemployment Index were developed."