I'm curious to know why you think the media and Govt. would want to mislead the public regarding inflation. I'm not trying to refute whether claims the CPI is low are true or not - but it really sounds like instead of having an issue of how the CPI is calculated you believe the public are actually being lied to.
Agreed, to a certain degree.
Perhaps the financial media is more culpable than the govt.
I keep hearing in the media that because inflation is low and deflation is a risk in the near term, we should put up with low returns on savings, we should not expect salary raises, etc.
I know for a fact that some employers (even those companies that are doing relatively fine in these times) are using these stats and commentaries to keep salaries pegged at previous year levels.
You only need to visit your local Wal-Mart or grocery chain store to see how inflation has crept up in the last 1 - 2 years.
How inflation/deflation of specific consumer products affects an individual will have more to do with how much is spent in that category. My personal food budget represents at most 5-7% of my total spending - so even if food inflation is at 10% annually, it will have little impact on my overall spending power.
Agreed, in my case however, household expenses are the largest component after mortgage.
This includes groceries, clothing, and other general household use items that need to be replenished every few weeks/month.
For such a household, higher expenses with offsetting increase in earned income leads to lower savings.
Since prices of luxury and discretionary items are now lower (cars, fancy electronics, etc.) retailers are making up for lost margins by jacking up prices of daily use products.
The govt. in turn is happy to keep collecting the GST/PST which otherwise would have reduced.