This is how it's done: You make up an average Americans shopping list and compare prices in regular intervals. Then you take out the items that really went up a lot and blame their great volatility for not including them. Then you make up a number and tell the public that there is no inflation at all.
Another way would be to just compare the money supply. Let's make up a very simple economy: Money supply is only 100 bucks and people only buy bread. Bread costs $1 per loaf and someone invents an apparatus to make bread cheaper. He can now sell it for 50 Cents per loaf.
If our initial method of measuring inflation would be applied, we suddenly have 50% deflation.
Wow, that's bad: the Fed to the rescue: They print up some more cash, so that the money supply now equals 200 Dollars (a 100% increase) and bread still costs $1 per loaf.
According to our government statisticians, no inflation at all ! (and no deflation, just perfection)
What has happened here ?
Even though prices have stayed the same, do you believe that there's no inflation ?
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