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The Burrito Index: Consumer Prices Have Soared 160% Since 2001

by Charles Hugh Smith, Of Two Minds:

Our real-world experience tells us the official inflation rate doesn’t reflect the actual cost increases of everything from burritos to healthcare.

In our household, we measure inflation with the Burrito Index: How much has the cost of a regular burrito at our favorite taco truck gone up?

Since we keep detailed records of expenses (a necessity if you’re a self-employed free-lance writer), I can track the real-world inflation of the Burrito Index with great accuracy: the cost of a regular burrito from our local taco truck has gone up from $2.50 in 2001 to $5 in 2010 to $6.50 in 2016.

That’s a $160% increase since 2001; 15 years in which the official inflation rate reports that what $1 bought in 2001 can supposedly be bought with $1.35 today.

If the Burrito Index had tracked official inflation, the burrito at our truck should cost $3.38—up only 35% from 2001. Compare that to today’s actual cost of $6.50—almost double what it “should cost” according to official inflation calculations.

Since 2001, the real-world burrito index is 4.5 times greater than the official rate of inflation—not a trivial difference.

Between 2010 and now, the Burrito Index has logged a 30% increase, more than triple the officially registered 10% drop in purchasing power over the same time.

Those interested can check the official inflation rate (going back to 1913) with the BLS Inflation calculator by clicking here.

My Burrito Index is a rough-and-ready index of real-world inflation. To insure its measure isn’t an outlying aberration, we also need to track the real-world costs of big-ticket items such as college tuition and healthcare insurance, as well as local government-provided services. When we do, we observe results of similar magnitude.

The takeaway? Our money is losing its purchasing power much faster than the government would like us to believe.

Comparing Burritos to Burritos: A Staggering Divergence of Reality and Official Inflation

According to official statistics, inflation has reduced the purchasing power of the dollar by a mere 6% since 2011: barely above 1% a year. We’ve supposedly seen our purchasing power decline by 27% in the 12 years since 2004—an average rate of 2.25% per year.

But our real-world experience tells us the official inflation rate doesn’t reflect the actual cost increases of everything from burritos to healthcare.

The cost of a regular taco was $1.25 in 2010. By official standards, it should cost a dime more. Oops—it’s now $2 each, a 60% increase, six times the official rate.

The cost of a Vietnamese-style sandwich (banh mi) at our favorite Chinatown deli has jumped from $1.50 in 2001 to $2 in 2004 to $3.50 in 2016. That $1.50 increase since 2004 is a 75% jump, roughly triple the official 27% reduction in purchasing power.

So let’s play Devil’s Advocate and suggest that these extraordinary increases are limited to “food purchased away from home,” to use the official jargon for meals purchased at fast-food joints, delis, cafes, microbreweries and restaurants.

Well, how about public university tuition? That’s not something you buy every week like a burrito. Getting out our calculator, we find that the cost for four years of tuition and fees at a public university will set you back about 8,600 burritos. Throw in books (assume the student lives at home, so no on-campus dorm room or food expenses) and other college expenses and you’re up to 10,000 burritos, or $65,000 for the four years at a public university.

University of California at Davis:

2004 in-state tuition $5,684
2015 in state tuition $13,951

That’s an increase of 145% in a time span in which official inflation says tuition in 2015 should have cost 25% more than it did in 2004, i.e. $7,105. Oops—the real world costs are basically double official inflation—a difference of about $30,000 per four-year bachelor’s degree per student.

Here’s my alma mater (and no, you can’t get a degree in surfing, sorry):

University of Hawaii at Manoa:

2004 in-state tuition: $4,487
2016 in-state tuition: $10,872

Sure, some public and private universities offer tuition waivers and financial aid to needy or talented students, but the majority of households/students are on the hook for a big chunk of these costs. And remember that many students are paying living expenses, which doubles the cost of the diploma.

If you think I cherry-picked these two public universities, check out this article:

So the divergence between real-world costs and official inflation isn’t limited to burritos; it’s just as bad in items that cost tens of thousands of dollars.

The Official Fantasy of Hedonic Adjustments

In the official calculation of inflation, hedonic adjustments offset soaring costs: that 160% increase in the cost of a burrito is offset by the much lower cost for computers, especially when the greater processing power and memory are accounted for.

Clothing has also gotten cheaper, and this theoretically offsets higher costs elsewhere.

The problem with this is sort of calculation is that we have to eat every day and we have to pay higher education costs if we want our kids to remain in the middle class, but we only buy a new “cheaper” computer once every few years, and we don’t even have to buy new clothing at all, given the proliferation of used clothing outlets, swap meets, etc. (I do my annual clothing shopping at Costco: two pair of jeans for $15 each , one pair of shoes for $15, etc.)

The savings on $100 of new clothing per year or a $600 computer every three years does not offset the doubling or tripling of costs for items we consume daily or big-ticket essentials such as higher education, rent and healthcare.

Read More @ OfTwoMinds.com

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4 comments to The Burrito Index: Consumer Prices Have Soared 160% Since 2001

  • A TRUE inflation index – completely eliminates the ridiculousness that is Hedonic Adjustment!

    Would be wonderful if an “economically awake” supermarket clerk had a set of books to substantiate these historical prices and could continue to update them on a blog or something…

  • Craig Escaped Detroit

    I also think the “college tuition inflation index” is probably even HIGHER than the Burrito index.

    Then there is the F150 index (Ford Pickup truck standard issue), or the MUSTANG index (back in 1964, you could order and buy a brand new Mustang for $2,495. (Of course, we still had SILVER DOLLARS back then.

    So, if you convert 1964 SILVER dollars ($2500), into TODAYS FRN’s, you end up with $36,000.

    SO now it doesn’t look quite so bad.
    ——————————————

    Today, a pair of SILVER DIMES is worth $2.88 in scrap silver. You can buy a GALLON of gas with 2 silver dimes and get back more than 60 cents in change.
    —————————————

    When the cartels lose all control of gold and silver, is when we will see the TRUE value of FRN’s VS PM’s. Of course, we know the ULTIMATE true value of FIAT is ZERO.
    ————————————
    That day is not so far off.
    ———————————-

    There are various news stories about the problems in Greece, is that things are so bad, College age women (attractive ones) are sometimes selling SEX for the “price” of a lunch-sandwich, or a HAPPY MEAL.

    • Ed_B

      @Craig

      Don’t even get me started on the “Tax Inflation Index”. 🙁

      • Craig Escaped Detroit

        @Ed, yeah, I agree that the taxes (especially for houses) is crazy and hard to get away from them, except for rare situations. Many areas can be found with a low tax burden, but it takes a lot of research to really dig down into it.

        For a while there, I was thinking the only way to a low tax rate, would be to buy some land that is not taxed much at all, and drop a trailer on it for the lowest tax rates, but underneath the trailer, to install a 3,000 sq-ft “septic tank” with several bedrooms, bathrooms, etc. and a hidden trap door/elevator for access.

        Those steel shipping freight containers would be a good shell to start with, not to mention that it would be very secure and offer a lot of safety from forest fires, airborne contaminants, stray hunting bullets, or swat teams in the yard, etc. Hahaha.

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