The US Government and the Fed measure inflation in a way that is tantamount to reverse Robin Hood theft. Government measures cheat savers and particularly senior citizens while subsidizing the wealthiest big banks and leveraged speculators. They do so by giving the Fed an excuse to perpetuate the ZIRP.

The headlines screeched this morning that consumer prices fell in September. The media dutifully reported that the seasonally adjusted headline number fell 0.2% month to month. The seasonally adjusted core CPI ex food and energy reportedly rose 0.2%.

Nobody in the media questions whether the data accurately represent inflation.

But these numbers do not measure “inflation” accurately. They exclude asset prices and do not properly measure consumer prices. They suppress the reported numbers primarily by vastly understating the rapidly inflating cost of housing, to which the BLS gives the heaviest component weight in CPI.

Seasonal adjustment also suppressed the numbers this month. The basis for using seasonal adjustments on CPI is weak. While prices do not rise on a straight line, there’s little evidence of consistent seasonal variation. On a not seasonally adjusted basis total CPI dipped by -0.15% in September.  Core CPI rose by 0.3%.

On an annual basis, headline CPI was down 1.9%, mostly on falling energy prices, which have stabilized this year (gasoline prices up 13% since January). Core CPI was reported to have risen 1.9%. That’s still below the Fed’s 2% target.

Here’s the biggest problem with these numbers.

Housing costs account for 37% of headline CPI and 41% of core CPI. The government uses an artificial measure of housing costs called Owner’s Equivalent Rent (OER). It was imputed at a seasonally adjusted rate of 0.3% for September. The annual increase was 3%.

The BLS invented Owner’s Equivalent Rent as a replacement for actual housing prices in 1982 because housing inflation caused the CPI to increase too fast. The government created CPI as a means to index government benefits, salaries, and procurement contracts. The government gets off cheap when it undercounts housing inflation.