I think that current announcements over-report actual inflation – insofar as inflation is the trend increase in the general price level, and inflation figures are also capturing a increase in some relative prices. I believe that in the past we have under-reported inflation, because their has been a decrease in some relative prices.

“I think we need a CPI that accurate reflects how prices have increased”

The CPI does accurately reflect how prices have increased for the average household – however, some prices have increased a lot more than others, which implies that some households have experienced a large increase in the cost of their previous consumption bundle, while others haven’t.

There are two questions we want to answer: “what is happening to peoples ability to purchase” and “what is happening to inflation”. We are trying to use the same measure (CPI) to tell us both – and we just have to be weary of its limitations.

I also agree that the Fed (and some other economists) would care a great deal about how the price changes already reflected in the economy are going to play out going forward – like your graph shows.