Is consumer price index the same as inflation?

Is the U.S. inflation rate over the past few years actually much higher than the CPI (Consumer Price Index) indicates? If so, how does this relate to the growth in the housing market and stock market?

• Reference http://www.shadowstats.com/alternate_data/inflation-charts and consider whether Fed policy toward curbing inflation has been working in this light.

• Answer:

  Almost a trick question, but here's my opinion on it First the effect on Housing.  The market is slowly recovering, however only those doing pretty well qualify for the loans, which are getting more expensive.  The inventory of house sold under duress is shrinking which is taking away some of the profit potential.  The inflation understatement isn't making much of a difference in this market as the other factors are too strong.  IF anything it is keeping some potential buyers out as prices rise and loans are more expensive while household income is stagnant.  As the feds continue to scale back the bond sale, interest rates should rise a bit more keeping growth in the market limited.  As the inventory bottoms out though, new construction could stage a bit stronger of a recovery. The stock market is a different beast altogether.  By understating inflation it makes the results companies have been earning look better than they perhaps are.  That is, if a company reports a 5% increase in sales, while inflation is reported at 2.5%, it would appear the company is doing better than breaking even in a tight market, and their price would probably appreciate.  But there is certainly more than that going on.  The fed's keeping interest rates low have sparked some borrowing by large companies in order to buy back their shares, this increase in demand also has caused the stock prices to rise.  As the fed's funding of this buy back fades, stock prices will probably correct because their is only a minimal recovery at best (just a glance at the labor participation rates and the lack of growth in household incomes will show that there only limited opportunities for growth in any market).  Many feel this is a bubble just waiting to burst.  While companies have been able to report profits despite the slowdown they have not been nearly strong enough to justify the huge gains in the market.  There has just been a lot of cash floating around (retained earnings, retirement funds).  When the fed stop the bond sales and interest rates move closer to where they should be, there will be fewer stock buy back programs and investors will look once again at fundamentals and move their investments accordingly.  This could be devastating to the consumer confidence which is probably why the Fed's maintain the program for the time being.  But already, some of the bigger investors are moving out of the market.  The feds are hopeful a real recovery will start and the market correction will be minor, hence their jubilation at employment numbers that are just as famously skewed.  If the Fed's policy is to increase consumer confidence and you believe that the high levels of the DOW and S&P 500 lead to higher consumer confidence, then the policy has been effective.  I think it has had some influence there, but people are noticing that their buying power is declining while companies fortunes are improving and this is starting to drive the inequality debate, as this gets more intense, the policy might backfire. Where this kind of difference has the biggest effect is on the government payouts that are tied to inflation, most notably Social Security.  By tweaking the reported CPI increase, the government was able to slow down the rise in these payments.  This make their budget look good, but at the same time, it slows down the recovery even more.  Those who live off their Social Security checks are faced with rising prices for the basics, food, energy, utilities and the increases are not keeping up with the real rate of inflation.  This reduces their spending in other areas, further reducing the chances of a full blown recovery.  The desire to make the government's budget easier to digest is perhaps the driving force behind these changes to the CPI index. Of course, with so many variables there will be almost as many opinions.  This  is merely mine.