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How the Inflation Rate in Germany is Manipulated

How the Inflation Rate in Germany is Manipulated

On January 16, the Federal Statistical Office published the official consumer price trend, i.e. the official inflation rate, in Germany for 2013. The annual inflation rate is said to have been 1.5% extrapolated for the year.

Why do I, and everyone I know who has asked me about it, have the feeling that this low, official inflation rate does not correspond to my experience as far as price increases are concerned?

Let’s take the gastronomy indicator: Shortly before the euro was introduced, a wheat beer cost 3.40 DM, which was 1.74 euros rounded off. Today, exactly 11 years later, the same beer costs 3.80 euros in the same restaurant! That makes exactly 7.36% increase per year according to compound interest calculator. A J√§gerschnitzel was to be had for 12 DM, costs today 11.9 euro, thus 6.2% increase per year. A Gouda cheese at Lidl cost about 2.8 DM, today about 2.9 Euro, so also between 6 and 7% price increase per year. This naturally raises the question of how this comes about and:

Can the official inflation rate be manipulated?

Now, in the last 11 years, there have been 7 years of officially below 2% inflation and only 2007, 2008, 2011 and 2012 inflation rates above 2%, but not above 2.6%. Yes right, at least officially. According to the motto “don’t trust any statistics that you haven’t falsified yourself”, you should take a look at the calculation of the inflation rate and the composition of the underlying basket of goods from the Federal Statistical Office.

An overview of the composition and calculation components of the basket of goods can be found here. This comprehensive basket of goods is therefore a representative average of the goods as they are purchased by the population. In other words, what a household in Germany spends its money on.

If you look at the weighting of the individual items, there are some items that you should critically question. In order to determine how realistic these assumptions are for the majority of the population, one must first determine what an average household in Germany has in terms of income and then convert absolute figures into a percentage based on income. Then you can compare these with the data in the shopping basket and, if necessary, question them.

In addition there is another trick, which actually always works: The shopping basket always includes a high proportion of goods that are bought only every two to four years, but are given a corresponding weighting due to their high price. This is what makes a representative household!

Example from earlier times: One takes the product video recorder with into the Warenkorb, because that already many have and soon all will have… Now with admission into the Warenkorb the product is still very expensive, say 1000 DM. Now there is a normal product cycle development, after which always same the price of a product over the time and quantity ever further sinks (keyword: cost reduction, competition, mass purchase of components, etc.). As a result, the average price of a VCR will drop to 200 DM in the next 4 years. This of course reduces the inflation rate. Now imagine a lot of such products in the shopping cart for the calculation of inflation, which run through this normal product cycle. If, after 5 years, there are hardly any price reductions, the product is removed from the shopping cart as technically obsolete and hardly sells any more, and a new one is added, e.g. a Blue-Ray player. Here, the product cycle starts all over again until the product is replaced again.
Here thus a price development of goods of the daily life is overshadowed by a usual price-sinking product maturity cycle!

The middle and especially the lower income strata spend their disposable income on providing for themselves or their families. That hardly leaves room for the purchase of new electronic toys. At least not as often as assumed in the shopping basket calculation. Here, a completely absurd buying behavior is simulated, which is not determined in a comprehensible way. Room for statistical manipulation is thus plentifully present….

The method of inflation calculation has been changed

The method used to calculate inflation is also simply a joke. For example, since the introduction of the euro in 2002, the Federal Statistical Office has been using the hedonic calculation method. It is simply assumed that improvements in the quality of certain products have a price-reducing effect on them! Thus e.g. a new computer is set with the computation only half of its actual price. The specious argument behind it: The new model is twice as good as its predecessor. But what kind of justification is that? Despite twice the speed, I spent twice as much money in real terms! There are thus quite possibilities over the statistics the official inflation rate to lower!!!

The creeping impoverishment of the population

The stupid thereby is only that the statistic, official value of the inflation rate has nothing to do with the real life of estimated 75% of the population. If you now follow the figures of the Federal Ministry of Finance, the average gross annual wage per employee in Germany in 2011 was about 28,300 euros, or about 2358 euros a month. That roughly translates into a net income of 1560 euros. This should then also be the “average citizen” represented by a basket of goods.

An example from the shopping cart: For housing, water, electricity, gas 31.7% of disposable income is given. That corresponds with 1560 euro net then approx. 495 euro in the month. I spend 750 euros for my 65 square meter apartment. For gasoline 3,87% of the income are indicated, that are 60 euro in the month. A tank of gas currently costs 75 euros for me and I fill up 2x a month. For telecommunication services and telephones 2,77 % are indicated, that is 43 Euro. With me it is about 63 euros for fixed network and internet as well as mobile telephony. You can go on like this in many areas.

In any case, the composition of the shopping basket does not correspond to my lifestyle! And this is how it is for many people in Germany, which is why the perceived inflation is much higher!

Because the difference between the official inflation rate and the inflation rate perceived by approx. 75% of the population is so large, Hans Wolfgang Brachinger developed an “Index of Perceived Inflation (IWI)”. Generally referred to as “perceived inflation denotes. The aim of this index is to quantify the extent to which a representative household is affected by inflation in its daily purchases according to its subjective perception. This index, or rate of increase = perceived inflation, is currently around 6% and rising….

Even though I don’t find the theory of perceived inflation and its basic hypotheses 100% suitable, because it is implied here that price changes are more “perceived” than that prices or living expenses really increase. At least this is a first approach that includes a different buying behavior and deviates from the basket of goods of the Federal Statistical Office. Unfortunately, Brachinger calculated this index together with the Federal Statistical Office and not independently of it. Therefore, it can also be assumed here that the “representative household” is more like the one used in the official calculation of the inflation rate.

Why would anyone want to manipulate the official inflation rate?

As mentioned at the beginning of this article, politicians have an interest in inflation, because this allows them to hand out expensive election gifts during the election campaign, which finance themselves over the years. The mountain of debt is getting higher and higher, even if the German federal budget for once shows a small plus of 0.2% as in 2012, because future deficits are foreseeable via the future demands of civil servant pensions, pensions and illness and care costs of an over-aged society. But not for the politicians.

To keep up appearances for as long as possible that the electorate is doing well, the inflation rate is manipulated. That is also important to have to pay as little interest as possible on the mountain of debt. If the official inflation rate were equal to the perceived 6%, then an equally high interest rate would be demanded on the capital market in order to avoid real capital losses (due to currency devaluation).With a negative real interest rate (achievable interest – inflation rate), a lot of capital would flow into tangible assets, since these are often seen as investments with a real value preservation.

The government’s debt would thus be automatically “devalued”

With high inflation rates the debt service for the national debts would be hardly more to be paid in the long term, a downward spiral from – higher net borrowing – higher budget deficit – higher interest at the capital market – rising wage demands – rising inflation rate – etc. would be set in motion, from which at the end only a currency reform could lead… The Weimar republic with the hyperinflation of 1923 sends greetings….

A low official inflation rate can lead to the fact that this is with 2.1% in 2011 just below the average wage development in Germany (2011 at 4.8%), so everyone has officially more money in the pocket…
Even savers are therefore satisfied with 1.75% interest, so only slightly less than the 2011 inflation rate of 2.1%, although this is just a creeping destruction of capital by withdrawal of purchasing power (negative real interest).

But if 6% inflation really has an effect on the household expenditures of the lower and middle classes, then even a gross wage increase of 4.8% will have no real impact on the economy.

niger in the pocket, not to mention the taxes (payroll tax, VAT), which at least half of the gross wage increase auffrist…Leider…


Continue reading: https://www.geld-anlegen.eu/wie-die-inflationsrate-in-deutschland-manipuliert-wird/

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