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Phantom GDP, Inflation, and Profits

The phantom GDP effect does nothing to change consumer price inflation, which is measured by a separate survey. However, it does imply that inflation measured via the GDP deflator is being understated. That is, the prices of the things that the U.S. produces are rising at a somewhat faster rate than the numbers show.

What does this mean for Fed policy? Hard to say, since it’s not clear which number is the right one to focus on.

What does this mean for profits? It means that real domestic profits of U.S.-based businesses are rising at a slower rate than we thought.

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