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The Bureau of Labor Statistics has announced that effective with the release of the January 2007 CPI, it will publish index levels to three decimal places under the pretense that a more precise presentation of the index will eliminate rounding errors in reporting percent changes in the current CPI. To deal with inflation statistics in such a scientific matter obfuscates the illusion that the Government is not responsible for inflation.

The causes of inflation are not multiple and complex. Rather, Government policies expand the amount of monetary media in circulation which causes inflation. If without increases in the stock of purchasing media, when costs of inputs are forced up, the retailers that pass along these costs as price increases will usually sell fewer goods. The result will be reduced output and loss of jobs. If consumers still purchase the same quantity of the more expensive goods, purchases of other goods and services must decline and we’d observe a fall in output, prices and employment in those sectors. The overall money on goods and services cannot change when a price rises absent additional purchasing media.

The CPI is subject to two types of errors: sampling errors and non-sampling errors. Sampling errors are uncertainties in whether the reported CPI accurately measures actual changes in prices because the CPI is an index based on only a small sample of prices, not all available prices. The magnitude of Government reported sampling errors indicate that the accuracy of the CPI is questionable up to a tenth of a percent. The Government does not report the magnitude of non-sampling errors – which as many have argued can be as large as two percentage points.

When there is general disagreement over whether the entire index is off by one percent or two percentage points, to think it is possible to accurately report inflation to one-one thousandth of a percent is absurd. Festooning up scientism in this scientific rhetoric doesn’t make the “officially approved statistics” any more useful – nor does it change the reason why the purchasing power of the dollar has steadily fallen since the abandonment of the gold standard.

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