Is Inflation Worse than Reported?

In his June 2008 Investment Outlook, PIMCO's Bill Gross opines that official U.S. inflation reports underestimate reality at the checkout counter.  He points out that the U.S. calculates its inflation rate differently from other countries in three major ways:

  1. hedonic quality adjustments,
  2. calculations of housing costs via owners’ equivalent rent, and
  3. geometric weighting/product substitution.

The inflation computation is important not only to those receiving social security payments, but to those evaluating bond yields, stock prices and commercial real estate. Please click here for the full text of Bill Gross' most recent Investment Outlook.