The Long History of Underreporting Inflation
It’s infuriating with each inflation print : Some economist or strategist waves off the hot headline number, advising you to focus on the core . The most recent bout of innumeracy has been going on for four years, but it dates back to at least the 2000s (and beyond).
There is a long — and IMO, disgraceful — history of trying to underreport inflation data. Most people are unaware of it. This post will serve as a reminder that since World War Two, American governments have worked to reduce the reported inflation data—accuracy be damned.
1944-45: Mitchell Committee. Derives from the fight over wartime price controls and the Cost-of-Living Index (COLI). The legitimate accusation was that it understated wartime inflation as goods became unavailable, wages froze, and black-market pricing took over. COLI understated price increases by 4 percentage points from 1941–44.
The BLS response: In 1945, the data series was renamed the “ Consumer Price Index ” and described as a fixed-basket price index.
1953: Postwar Basket Revisions. Comprehensive revisions rebuilt the goods basket from an earlier 1950 survey – the first since 1934–36.
1961: Stigler Committee. The Price Statistics Review Committee stated that CPI should be reconceived as a cost-of-living index. This included a series of well-intentioned changes (new-goods bias, quality change, substitution, along with hedonic adjustments).1
1972-75: Core Inflation. BLS’s “all items less food and energy” series dates back to 1957, but it was not a policy focus until the 1970s era of stagflation. After the 1972–73 food price spike, Fed Chair Arthur Burns had the Fed staff strip out food as “weather, not monetary policy”; then, after the embargo, energy was removed. Soon after, it was used cars, mobile homes, children’s toys, and so on until only a fraction of the basket remained.
Hence, my 2005 phrase for this: “ Inflation Ex-Inflation . ”
Over the ensuing decades, this was followed by the Cleveland Fed’s median/trimmed-mean CPI (1994), the Dallas Fed’s trimmed-mean PCE (2005), Atlanta’s sticky-price CPI (2010), and Powell’s “supercore” services ex housing (2022).2
The problem for consumers: You can’t eat core .
1983: Owners’ equivalent rent. The largest change in the basket, one with perverse, very counterintuitive results, especially leading up to the GFC and afterward.
Before 1983, homeownership was an asset-price plus mortgage-interest cost. But mortgages hit 18% in 1981, causing the CPI to surge; 1980s COLAs were huge! BLS moved CPI-U to rental equivalence in January 1983; BEA’s PCE had used rental equivalence all along.
It was a defensible concept; a house is an appreciating asset while shelter is a consumer good. But the 2002–07 housing bubble did not show up in CPI, because rent prices were restrained by millions of Americans stampeding into no-doc, ARM mortgage, home ownership purchases.3
We saw this OER distortion rear its head during the 2021–23 shelter price lag.
1995–96: Boskin Commission. Greenspan testified in Congressional testimony in January 1995 that CPI overstated inflation by 0.5–1.5 points.4 The Commission (Boskin, Dulberger, Gordon, Griliches, Jorgenson) reported in December 1996 that there was an upward bias of 1.1 points a year, with a range 0.8–1.6.5
It was pure political bullshit .
The political purpose was to reduce COLA and tax bracket creep, saving $1 trillion dollar deficit reduction over the next decade or so. BLS implemented it administratively.
In “Bailout Nation,” I discuss the role this stealth inflation played in the crisis.6
Here was my question in the 2000s: If inflation was properly reported (e.g., pre-Boskin), might the Federal Reserve have picked up the distortions in the backward, real estate-driven economy?
2017: Chained CPI as fiscal policy. It’s ironic that the only Obama policy idea adopted by Trump was the proposed C-CPI-U for Social Security COLAs and tax indexing. It was implemented in the 2017 Tax Cuts and Jobs Act.7
2000: Fed changes its target to PCE. February 2000 Monetary Policy Report shifted the Fed’s preferred gauge from CPI to PCE (broader scope, chained formula, business-survey weights including 3rd-party health spending);
2004: Fed changes its target to Core PCE . Since 2012, the 2% target is a PCE target. This lowered the inflation number the Fed is judged against by ~0.5 pts/yr versus CPI.
2020–26: Annualizing. Weights moved to annual updates in 2023, a response to the pandemic basket shock. By October 2023, this created reporting issues: a health-insurance smoothing fix, a 2022 new-tenant rent index to address shelter lag, and in 2025 BLS replaced survey collection with vendor transaction data for leased vehicles (April 2025) and wireless services (July 2025),
2025: Suspending CPI . DOGE firing and other staffing cuts led BLS to suspend CPI collection in several metro areas in 2025; it was replaced with (LOL) imputation. Trump fired Commissioner McEntarfer on August 1, 2025, after a bad jobs report, and the Antoni nomination that followed did not go through.
The 2025 episode is something brand new, different, and much worse : not creatively re-measuring inflation downwards, but ceasing to measure it entirely.8
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It is no coincidence: Every major change since 1983 went in the same direction – reducing the reporting of inflation data, regardless of increasing prices, often with dire consequences.
Technical changes in the US have been nearly all directional in the same way, and almost always timed to a fiscal or political need.
Previously :
The History of Inflation ex-inflation (September 23, 2005)
For Lower Inflation, Stop Raising Rates (January 18, 2023)
CPI Increase is Based on Bad Shelter Data (January 11, 2024)
CPI Shelter Measures: 6-12 Month Lag (February 15, 2024)
Inflation Archive
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1. In 1961 there were no automatic federal COLAs; Social Security indexation came in 1972, tax brackets in 1985. The only CPI-linked money at stake was union escalator clauses. BLS resisted for 35 years. Most 1996 Boskin Commission claims date back to 1961 Stigler.
2. The 1978 revision introduced CPI-U (all urban consumers, ~87% of the population) alongside the wage-earner index, and WPI became PPI. (See 1978: CPI-U vs CPI-W . )
I don’t think of this change as a CPI manipulation, but I am open to being convinced otherwise.
3. Analyst Josh Rosner noted that “ A Home Without Equity is Just a Rental with Debt ;” he wryly observed this was not actual home ownership; it was “ Renting with the right to default .”
4. Was this perjury? Technically, no: “ It’s not a lie if you believe it .”
5. The details: ~0.4 from upper- and lower-level substitution, ~0.1 outlet substitution, ~0.6 quality change and new goods.
6. From Bailout Nation :
“During most of the 2003-2007 run-up in prices, the consumer price index (CPI), the official measure of inflation, hardly budged. Credit the Boskin Commission for contributing to this illusion of low inflation. The Boskin reforms changed not only the basket of goods measured for inflation but how we measure them. It allowed “hedonic adjustments” for the improvement of quality. Forget what the window sticker says; Your new car isn’t really more expensive— it’s better .
Then there was substitution—for example, when the price of steak rises, consumers can replace it with chicken at the previous low prices. In the topsy-turvy world of Boskin, substituted prices remained the same. In the real world, inflation just drove steak out of your price range.”
7. Obama’s FY2014 budget proposed C-CPI-U for Social Security COLAs and tax indexing, then withdrew it under pressure from the left. After TCJA 2017, it chained CPI for bracket indexing was adopted permanently. (Benefits still use CPI-W). This makes the index closer ty the Boskin Model – it increases tax revenue via bracket creep.
8. The October–November 2025 shutdown produced something without precedent: no October 2025 CPI release at all; the data could not be retroactively collected, and the November report omitted monthly changes for the affected items.
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