Yes the salaries are inflated
PLAYERSALARY (US$)
1. Alex Rodriguez25,680,727
2. Derek Jeter20,600,000
3. Jason Giambi20,428,571
4. Mike Mussina19,000,000
5. Randy Johnson15,661,427
6. Bobby Abreu13,600,000
7. Johnny Damon13,000,000
8. Hideki Matsui13,000,000
9. Jorge Posada12,000,000
10. Gary Sheffield10,756,171
11. Mariano Rivera10,500,000
12. Carl Pavano8,000,000
13. Jaret Wright7,666,667
14. Kyle Farnsworth5,416,667
15. Cory Lidle3,300,000
16. Craig Wilson3,300,000
17. Ron Villone2,250,000
18. Octavio Dotel2,000,000
19. Bernie Williams1,500,000
20. Tanyon Sturtze1,500,000
21. Mike Myers1,150,000
22. Miguel Cairo1,000,000
23. Sal Fasano425,000
24. Robinson Cano381,100
25. Nick Green356,700
26. Scott Proctor353,675
27. Chien-Ming Wang353,175
28. Andy Phillips331,150
29. Wil Nieves328,600
Total Team Salary: 198,662,180

MLB TEAMPAYROLL (US$)
1. NY Yankees198,662,180
2. Boston120,100,524
3. LA Angels103,625,333
4. Chicago Sox102,875,667
5. NY Mets100,901,085
6. LA Dodgers99,176,950
7. Chicago Cubs94,841,166
8. Atlanta92,461,852
9. Houston92,101,503
10. San Francisco90,862,064
11. Seattle87,924,500
12. Philadelphia87,148,333
13. St. Louis86,912,217
14. Detroit82,302,069
15. Baltimore72,585,712
16. Toronto71,915,000
17. San Diego68,897,179
18. Texas65,129,570
19. Minnesota63,810,048
20. Washington63,267,500
21. Oakland62,322,054
22. Cincinnati59,162,015
23. Arizona58,884,226
24. Cleveland56,795,867
25. Milwaukee50,540,000
26. Kansas City47,294,000
27. Pittsburgh46,867,750
28. Colorado40,791,000
29. Tampa Bay35,417,967
30. Florida14,344,500
Note:
Team salaries do not represent full team payroll. Number listed includes current salary for all players currently on the roster