Pimco's McCulley: Government Understating Inflation

The standard of living has decreased for many Americans, a trend that will reverse only after the troubles in the housing market work through, Pimco Managing Director Paul McCulley said on CNBC.

"For the average American, inflation as measured by the government is understated," McCulley said in a wide-ranging interview. "The economy is still in a heap of trouble." Pimco is the world's largest bond-trading firm.

Consumers also are bedeviled by soaring gasoline costs, with the national average now more than $4 a gallon for regular unleaded. While McCulley said he does believe one factor in the oil surge, the decline of the dollar, is near an end, Americans will continue to feel the pain.

"The economy is going to be suffering a lot longer than Wall Street," he said. "Wall Street has gone through absolute hell the last 10 months or so, whereas Main Street moves at a slower pace. Main Street is taking on some serious heat from the property market deflation and now this slap in the face of $100 to fill up your Escalade."

Despite rampant speculation, McCulley doubts Federal Reserve Chairman Ben Bernanke will push for the central bank to start raising interest rates, even if the European Central Bank does so.

"I don't think the Fed's going to hike rates this year," he said. "I think Mr. Bernanke's doing what a good central banker is supposed to do. As a practical matter I don't think there is latitude for hiking rates this year."