Compare Official US CPI inflation against the ShadowStats (1980-based) true inflation. See how much the methodology changes affect your wallet.
History
How to Interpret the Split
The Tale of Two Inflations
This calculator allows you to see the difference between the Official CPI (Consumer Price Index) reported by the Bureau of Labor Statistics and the ShadowStats Alternative CPI.
Why the difference?
In 1980 and again in 1990, the US government changed how it calculates inflation. Critics, most notably John Williams of ShadowStats, argue these changes were political moves designed to lower reported inflation (and thus lower Social Security COLA payments).
The Two Main “Gimmicks” Removed by ShadowStats:
- Substitution Bias: The government assumes that if steak gets expensive, you switch to hamburger, so your “cost of living” didn’t go up. ShadowStats argues this lowers your standard of living.
- Hedonics: If a computer costs the same but gets faster, the government counts that as a price drop. ShadowStats argues you still paid the same amount of cash.
By removing these adjustments and using the original 1980 Methodology, ShadowStats typically shows inflation running 4% to 8% higher than official reports.
The Math Behind It
The tool calculates two different future values ($FV$) based on different Consumer Price Indices (CPI):
$$ FV = P \times \frac{CPI_{End}}{CPI_{Start}} \quad \text{vs} \quad FV_{Shadow} = P \times \frac{CPI_{End} \cdot (1+d)^n}{CPI_{Start}} $$
Where:
- $FV$ is the Future Value (Cost in Target Year).
- $P$ is the Principal (Amount in Start Year).
- $d$ is the Divergence Factor (The difference in methodology).
- $n$ is the number of years the divergence has compounded.