Another Financial Bigwig Says US is Goosing Inflation Statistics

This time, it's Pacific Investment Management Co.'s Bill Gross, who has been called, " Called "the nation's most prominent bond investor" by the New York Times."

You can read his essay here:

The U.S. seems to differ from the rest of the world in how it computes its inflation rate in three primary ways: 1) hedonic quality adjustments, 2) calculations of housing costs via owners’ equivalent rent, and 3) geometric weighting/product substitution. The changes in all three areas have favored lower U.S. inflation and have taken place over the past 25 years, the first occurring in 1983 with the BLS decision to modify the cost of housing. It was claimed that a measure based on what an owner might get for renting his house would more accurately reflect the real world – a dubious assumption belied by the experience of the past 10 years during which the average cost of homes has appreciated at 3x the annual pace of the substituted owners’ equivalent rent (OER), and which would have raised the total CPI by approximately 1% annually if the switch had not been made.

Me, I'd argue that he's conservative in his estimates, and place the error closer to 3% than to 1%.

Note that as a bond trader, he is in a segment of the market most effected by these aberrations, and by virtue of being Bill Gross, the financial press will cover this.