Topic: Substitution Bias

The official Consumer Price Index (CPI) is criticized for systematically understating inflation since the 1996 Boskin Commission. Through "substitution bias," the government replaces high-priced items like steak with lower-priced items like hamburger in the inflation basket. If 1980s-era metrics were applied today, real inflation would be estimated at approximately 15%.

Current inflation is estimated to be around 15% when using the metrics from the 1980s before the Boskin Commission introduced "substitution bias" to the Consumer Price Index (CPI). During the Reagan era, interest rates were raised to 18% to combat 14% inflation, whereas today's rates remain lower than the actual inflation rate. This artificial understatement of inflation allows the government to reduce cost-of-living adjustments for the public.