What is the Real Inflation Rate?

There is something fundamentally wrong with the global economy, and for better or worse, the United States Dollar remains the primary world reserve currency. This means mismanagement of our economy affects everyone else to a far greater degree than mere trade balances and exchange rates would otherwise suggest.

If you've followed my posts for long, you already know I tend to favor the Austrian School of economic thought. They are far from the only ones sounding the alarm that the official metrics for economic conditions are not presenting a full and accurate picture. Eugene "Gene" Ludwig is about as mainstream as they come, with connections to finance and corporate industry in addition to a stint as the 27th Comptroller of the Currency under the Clinton administration during the 1990s.

Note: this was after the early 1990s recession, which Austrian school economist Murray Rothbard warned was an inevitable consequence of the Reagan-era inflationary policies in his 1986 article, Money Inflation And Price Inflation. According to the Austrian Business Cycle Theory, the fiscal policies of the Clinton administration then set the stage for another boom-bust business cycle as we later saw manifest in the dot-com bubble. After that, the housing bubble which Federal Reserve chairman Ben Bernanke said didn't exist eventually burst. "Quantitative Easing" has been the policy ever since.

Gene Ludwig founded the Ludwig Institute for Shared Economic Prosperity (LISEP), which uses much more mainstream analysis to shine a light on what they see as the real inflation rate, unemployment rate, and other metrics as shown in the screenshot from their site used as the cover image for this post.

The Federal Reserve claims to be targeting an arbitrary 2% inflation rate. It has failed to achieve even that limit for several years even using the Consumer Price Index (CPI) as its measure. Instead, even the official data presently shows 2.9% inflation from August 2023 to August 2024 as seen in the chart screenshot here.

Few of us in the real economy find this plausible. CPI data includes many dubious assumptions in its analysis, and the LISEP True Living Cost (TLC) tries to remedy this. You can read the most recent 2024 white paper here, but the following notes from the website should suffice.

The portion of CPI for medical care largely ignores healthcare premiums — which make up the majority of a medical budget in most households. For the bottom 60% of American Households, health insurance premiums account for more than 70% of all medical costs. The CPI instead focuses on the prices paid by the insurance companies, which is irrelevant for Americans’ budgets and spending.
Housing

[...]

CPI for technology does not account for the fact that technology has gone from being a luxury to a necessity. [...] This paradox is reflected in the fact that from 2007 to 2018, the newest iPhone release price went up 100% while the CPI for telephone hardware went down by more than 50%.

[...]

CPI for transportation accounts for all transportation-related goods, including boats, new cars, and airline fees, which are largely irrelevant to middle- and low-income families. The TLC Index takes into account the price of only the necessities, including gas, used car prices, and regular car maintenance.

In other words, according to the analysts at LISEP, the assumptions baked into the government's CPI measurements do not reflect the real-world spending and priorities of consumers, especially the poor and middle-class, while also failing to adapt as technology changes over time.

LISEP also offers what they call the True Rate of Unemployment (TRU) as part of their workforce analysis.

True Rate of Unemployment tracks the percentage of the U.S. labor force that does not have a full-time job (35+ hours a week) but wants one, has no job, or does not earn a living wage, conservatively pegged at $25,000 annually before taxes.

This analysis also includes a number of its own assumptions, but certainly suggests more of the economic reality people face in America. It breaks down data by age, race, gender, and education level as well. It does not, at least on the main website page, differentiate by location, cost of living, or other regionally-relevant data points or show hoe men and women vary in their full- or part-time employment choices and industries. Nonetheless, it is remarkable to see how the same data used by the government paints a completely different picture.

The third major part of LISEP analysis is the True Weekly Earnings (TWE). According to their July 2025 TRU/TWE report,

TWE declined by 0.4% in Q2, with the median wages dropping from $1,005 to $1,000. This figure is notably 16% less than the $1,196 reported by the BLS, which also reported a 0.2% drop in its median wages.

All told, while I don't entirely trust the LISEP framework, they provide a valuable second look at the official government data with a new lens for interpretation, and shed light on the harsh reality hidden behind layers of bureaucracy.

What I have not found yet, at least in my cursory examination of LISEP's material, is an understanding of what causes inflation or how inflation affects the wider economy. For a deeper understanding, I still recommend the Austrian method, and would point readers to What Is Inflation? Clarifying and Justifying Rothbard’s Definition by Kristoffer J. Mousten Hansen and Jonathan R. Newman, The Quarterly Journal of Austrian Economics Vol. 25 No. 4.

We are likely to see partisan finger-pointing and demands for more government intervention. The left always wants more welfare programs and has been arguing for Universal Basic Income in recent years as a solution. The right talks about free markets, but then subsidizes industries and maintains spending and regulation instead of trimming back. The economy still hasn't properly recovered from the housing bubble and subsequent "Quantitative Easing" policies. COVID restrictions left scars which have not yet healed. Now Trump is imposing arbitrary tariffs and trying to seize ownership of various companies while insisting on low interest rates to keep the illusion of prosperity alive. This is unsustainable. Will the culprits shift the blame for the next collapse yet again?