It's not just you. Finance boys say CPI is a joke:

From Bloomberg: (emp add)

TIPS Flunk Inflation Test as Fuel, Food Overtake CPI

July 7 (Bloomberg) -- Treasury Inflation Protected Securities aren't living up to their name for bond investors who say they can't trust the way the U.S. government calculates the rising cost of consumer goods.

Morgan Stanley, the second-biggest securities firm, and FTN Financial, a unit of Tennessee's largest bank, are telling clients to pare holdings of TIPS, whose principal amount rises with the Labor Department's consumer price index. Morgan Stanley says derivatives tied to inflation expectations are a better bet, while FTN recommends corporate and agency bonds because the index doesn't reflect the actual rate of U.S. inflation. ...

"The consumer price index underestimates inflation," said Jeremy Wolfson, who oversees $8.5 billion as chief investment officer at the City of Los Angeles Department of Water and Power Pension Fund. ...

... Thomas Atteberry, a partner at Los Angeles-based First Pacific Advisors, who manages $3.5 billion in bonds [said] "CPI understates what's really going on in the economy from an inflation standpoint" ...

William Fleckenstein, president of Fleckenstein Capital Inc. in Seattle and co-author of ``Greenspan's Bubbles: The Age of Ignorance at the Federal Reserve,'' [said] "One reason why I've never owned TIPS is because I knew the CPI was a cheat" ...

Criticisms of the CPI center on the practice of understating price increases to account for quality improvements in goods like cars and computers. The government also changes the basket of goods it uses to calculate CPI, replacing more expensive products with cheaper ones.

posted by Quiddity at 7/12/2008 06:51:00 AM