There is no shortage of correlations such as the one shown below (PPI VS real GDP) that brings into question the real GDP reported over the past two years. In other words real GDP appears somewhat inflated since Q3 2009. You can substitute PPI in the chart below and find many similar relationships or should I say "divergences from reality."

This then begs the question how does the price index which is used to convert nominal GDP into real GDP compare to the reality of inflation. Below is a chart comparing CPI-U (not excluding food and energy) versus the BEA reported Product Price Index. Notice the divergence since Q3 2009?

For such a complicated calculation that GDP can be it is quite amazing a little thing like the price index can be used to simply inflate real GDP. Dare I say manipulate the truth?

By Tony Pallotta

http://macrostory.com/

Bio: A Boston native, I now live in Denver, Colorado with my wife and two little girls. I trade for a living and primarily focus on options. I love selling theta and vega and taking the other side of a trade. I have a solid technical analysis background but much prefer the macro trade. Being able to combine both skills and an understanding of my "emotional capital" has helped me in my career.

© 2011 Copyright Tony Pallotta - Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Comments

William
17 Aug 11, 19:12

GDP

The falsely LOW inflation numbers of the CPI make it look like there is GDP growth, however low. If the real inflation numbers were presented by BLS (at least 10%),

there is NEGATIVE GDP.

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