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Who says inflation is tame?

White House hopeful John Kerry has released a "middle-class misery index" that claims President George Bush's policies have caused wages to drop and created sharp spikes in the costs of college tuition, health care premiums and gasoline.

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When it comes to measuring misery, Mr. Kerry isn't breaking new ground. The original misery index has been around since the 1970s, combining the unemployment rate and the inflation rate. Forbes magazine publishes a tax misery index. There's even a "grindcore metal band" from Maryland called "Misery Index."

But the federal government has long published its own version of the misery index -- the Consumer Price Index. It measures monthly changes in the prices of thousands of goods and services consumers buy. Rising prices indicate inflation; falling prices indicate deflation.

Recently, the CPI shows tame inflation -- running at about 2 percent or less annually. But real people with real bills say their personal misery index shows inflation is on a tear.

Alan Greenspan's perspective of inflation: "crazy"
Dan Keniston has been cutting and trucking wood in the White Mountains of New Hampshire for 40 years. At one time he had 15 employees; now he's a company of one. He does what he can by himself, thanks to an inflationary spiraling of workers' compensation rates.

"Not long ago I was paying $34 per every $100 of wages. Then it went to $41, then $50.98, and one year ago it went to $64 per every $100. On top of that you have to match the Social Security and pay unemployment. That meant I was paying an additional 75 percent of what I was paying in wages. I just couldn't afford it.

"Logging is dangerous, and the insurance company says that's why the workers' comp rates are so high. But I've had only one claim in 10 years and they only paid $173, so they're not losing any money on me," says Keniston.

Ask Keniston what he thinks when Federal Reserve chairman Alan Greenspan says inflation is quite low, around 2 percent.

"I think he's crazy," Keniston says quite emphatically.

"I'm paying $1,389 a quarter for health insurance with a $5,000 deductible. Fuel is terrible. It's about $1.77 for diesel. We've seen diesel go from 92 cents three years ago this summer to $1.77 now. The insurance on my logging truck has gone up $1800 in two years. That includes $100 on my commercial liability in case of a terrorist attack!"

How can it be that people who are paying bills are getting squeezed while the government tells us that inflation is tame?

Cost of living different for everyone
Economist Joel Naroff of Naroff Economic Advisors Inc., says the CPI may not be the best measuring tool.

"It's a real problem because the CPI is just a bundle of goods that reflect typical expenditure patterns. It wasn't created to be a representative cost of living index. There is no one way of measuring -- there's inflation and there's the cost of living. Just because the CPI is tame doesn't mean peoples' cost of living is tame.

"While the stated inflation rate may not be going up rapidly, prices may be going up more so, depending on your lifestyle. If you're seeing doctors, you have kids in college or you live in an area that depends heavily on energy sources such as natural gas, oil or propane, you're seeing some pretty significant price increases. We're seeing significant increases in insurance.

"My cost of living is totally different than yours. If rent is skyrocketing and I own my home, it doesn't mean a thing to me. But all these things are pushing the average individual or family even while the government says there's little inflation."

Health insurance inflation enough to make you sick
A study by the Washington, D.C.-based Kaiser Family Foundation shows that private health insurance premiums increased 13.9 percent in 2003, the third consecutive year of double-digit increases. Over that time span, Kaiser reports, the premium employees pay for family coverage has increased almost 50 percent from $1,619 to $2,412.


-- Posted: April 21, 2004




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