• 539 days Will The ECB Continue To Hike Rates?
  • 539 days Forbes: Aramco Remains Largest Company In The Middle East
  • 541 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 941 days Could Crypto Overtake Traditional Investment?
  • 946 days Americans Still Quitting Jobs At Record Pace
  • 947 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 951 days Is The Dollar Too Strong?
  • 951 days Big Tech Disappoints Investors on Earnings Calls
  • 952 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 953 days China Is Quietly Trying To Distance Itself From Russia
  • 954 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 958 days Crypto Investors Won Big In 2021
  • 958 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 959 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 961 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 961 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 965 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 966 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 966 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 968 days Are NFTs About To Take Over Gaming?
What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

Michael Pento

Michael Pento

Delta Global

With more than 16 years of industry experience, Michael Pento acts as chief economist for Delta Global Advisors and is a contributing writer for GreenFaucet.com.…

Contact Author

  1. Home
  2. Markets
  3. Other

Getting Real with GDP

With the release of last week's Consumer Price inflation numbers, the debate over the accuracy of the government's reported Consumer Price Index data was once again front and center. The official numbers showed that the overall rate of consumer inflation rose .2% while the over-hyped core rate rose just a paltry .1%.

However, these incredible April numbers were the result of a seasonal adjustment that removed much of the increase in gasoline prices. Unbelievably, the report claimed that consumer's energy costs were unchanged while the actual price of crude oil rose about 12.5% and gas prices rose 11% during the same period in question -- that's some adjustment!

One of the reasons it is imperative to accurately calculate inflation is that you need a true reading on price increases in order to get a true reading on economic growth. If we used an accurate inflation rate to deflate nominal G.D.P. it would have certainly settled the argument as to whether we or not the economy is in recession. Since most investors are bound by official government data, I thought it would be worthwhile to use the Consumer Price Index to derive real G.D.P. rather than the chain type price index -- which is an even more tortured inflation measurement than the C.P.I. The reason why the C.P.I. is a better estimate of inflation than the chain type price index is the chain type index allows substitution between categories, while the C.P.I. is limited to substitution within a specific category.

The following graphs show G.D.P. growth rates using the chain type price index, annualized quarterly growth rate in C.P.I. and the year over year growth rate in C.P.I.

 

Nominal G.D.P.

Chain Type Index

Real G.D.P.

Q1 - 2008

3.2%

2.6%

0.6%

Q4 - 2007

3.0%

2.4%

0.6%

 

 

Nominal G.D.P.

C.P.I. Annualized
Growth Rate

Real GDP

Q1 - 2008

3.2%

2.8%

0.4%

Q4 - 2007

3.0%

5.6%

-2.6%

 

 

Nominal G.D.P.

C.P.I. Year Over
Year Growth Rate

Real G.D.P.

Q1 - 2008

3.2%

4.1%

-0.9%

Q4 - 2007

3.0%

4.0%

-1.0%

Using the government's data on year-over-year inflation growth rates instead of chain, the recession began in Q4 2007 and the last two quarters produced negative real G.D.P growth rates. I hasten to add that investors know this; they experience real-world inflation everyday and know actual economic growth is much weaker than reported. And I'm not even using a more realistic rate of inflation, just the understated, "official" gauge that is the C.P.I.

The two most important takeaways from this are that A) the economy is much slower and B) inflation is much higher than what is generally accepted. And it is that misconception that provides investors with the ongoing investment opportunity in real assets.

*I discuss this and more on my podcast, The Mid-Week Reality Check!

 

Back to homepage

Leave a comment

Leave a comment