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Comment by soared | Hacker News Reader

The consumer price index shows it isn't inflation. This is 20 years of data and you can click each basket to see it on the graph. "ALL" is up 1% YoY.

https://www.bls.gov/charts/consumer-price-index/consumer-pri...

The only item baskets I found with recent increases are food, new vehicles, and medical care.

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The consumer price index is a joke.

House prices doubled and the consumer price index shows low inflation for the same period.

I don't care about the price of a smartphone or whether spaghetti became 10 cents more expensive. I care about whether or not I will be able to afford a house through a lifetime of work. And it's looking bad at that front. I'd literally have to pay back debt for longer than I still have to work before retirement.

The consumer price index is an average over an economy with a bunch of heterogenous goods, and a bunch of people who care different amounts about different subsets of them. I tend to agree that cheap housing is more important than cheap spaghetti or cheap iPhones, but that doesn't mean the CPI is wrong; it's just measuring something different than the details of what an optimal household budget ought to look like.

If you believe that inflation is actually much higher than is generally believed by the public/markets you shouldn't care so much about mortgage payments > 10 years from now on a loan with fixed payments.

The huge inflation you expect will mean the real cost of these payments dwindle in size so they will matter very little to you.

The issue is of course that the salaries/wages don't get raised as much as the other costs mentioned by the OP (housing, among others, I'd add education), they haven't done so for quite a long time now.

In order to be able to have "real cost of payments" going down because of inflation you'll still need some down-payment or some basic proof that you'll be able to pay back the loan you're about to get, and those stagnating wages often times are not enough for that.

When a subset of goods are rising in price at a faster rate than other goods you aren't really talking about inflation anymore. You're talking about something else. It's pretty important to recognize the distinction.

> subset of goods are rising in price

This is not a random subset of goods, we're talking about basic things like housing (as also mentioned by someone above) and education. It's not like the diamonds or the yacht markets have gone through the roof while everything else has remained pretty much stable, we're talking about stuff that affects almost everyone in their day-to-day life.

I'm not saying that these price increases don't matter. I'm saying that they aren't caused by inflation and that recognizing the distinction is important.

I think that depends on how you use the word inflation. Some posts up someone defined it in eco science terms. Some people define it via the consumer price index. The consumer price index is what governments and and companies use in salary negotiations. So for people, the consumer price index is what drives their salary. If this consumer price index is not adequately factoring in the price of houses (cost of housing) or stocks (price of saving for retirement), than they are skewed. Salaries will trail behind rising cost aka. my generation is basing social status on smartphones instead of houses, because we can't afford houses.

Now, low interest rates play an important counter role: it is cheaper to finance a house. It due to the increased prices, it takes a lot longer. Combine that with the fact that my generation deals with less worker rights and job safety (they call it flexibility) and the fact that I have now seen two once in a lifetime economic crisis within 12 years ... It's getting quite hard to sign that 40 year finance plan.

There is however a solution to this, which is to leave the cities and move to the countryside, where I can build a house on a plot of land that used to be part of my grandma's farm. Not everybody is that lucky tough and not everybody can a find a job there or work remote. Hell, I'm not sure if I can, given that the internet there is still copper based.

In my opinion the issue is that to much money goes into buying existing things and to little money goes into creating new things. QE and other gov. measures seem to be going mostly into propping up prices of existing values, so the ones who own them don't lose virtual money.

Inflation rate is a measure of how much demand is exceeding supply. Generally central banks focus on inflation on consumer goods because consumer goods and services pay the wages of workers. If consumer inflation is low that means there is little demand for consumer goods and by extension there is little demand for workers.

The point harryh was trying to make is that if consumer inflation is high then you could trivially pay off a low interest mortgage because inflation is constantly reducing the effective principal of the mortgage.

In reality what we see is asset inflation and asset inflation is usually a sign of mild deflation because there is an overabundance of production capacity or labor and therefore consumer goods with no takers.

Median sale price of houses sold has increased 2% from November 2019 to November 2020. https://fred.stlouisfed.org/series/MSPNHSUS

That's on par with historical annualized inflation rates.

Your median sale price index compares house prices in some random Southern hell hole in Mississippi to a disaster ravaged area of Puerto Rico with NY and SF or Atlanta and Austin house prices. Places where people can actually go to work.

I think this is the median house price ... sort all the prices for houses sold in the USA in a year, pick the one in the middle, so ...

The middle can shift to the right easily if you exclude houses in some random houses in the middle of nowhere, while retaining exclusive country neighborhoods that people still move to and commute to and from for work.

The nice thing about the median is that it's robust against outliers like the ones you've mentioned. It's over $300k, so we're definitely not talking about some hellhole in MS.

How about median house prices in all major employment zones in the US? I'm sure that would filter out all the small places in the country while also including places in the country used by the old money Brahmans. In either case, you still can't compare house prices in Albany to house prices in NY, which these median measures happen to weight in, even if slightly. Exclude a thousand such places and the median shifts to the right.

> House prices doubled and the consumer price index shows low inflation for the same period.

And? In Canada, the CPI has Shelter as 27%, with Owned accommodation being 17%:

* https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc...

What's the component breakdown for the US CPI?

Just because prices for some things are up does not mean prices for all or even most things are. And even though prices are up, mortgage rates are down, which may result in a net-zero change to affordability (i.e., your monthly carrying costs end up being the same).

Heck, some Danish mortgage rates went negative in 2019:

* https://www.theguardian.com/money/2019/aug/13/danish-bank-la...

CPI is mostly for boomers that already have their house ownership secured.

For everyone else, it's bullshit. Especially young people are extremely fucked by it.

There are multiple types of inflation. Asset inflation is what your parent is talking about, which is not well reflected in the CPI.

Any product/service with domestic labor as a primary input (healthcare, education, childcare, construction, professional services) has seen much higher inflation.

The immediate price of goods isn’t the only measure of inflation. The fact is that the supply of the dollar has exploded. https://www.cnbc.com/2020/12/31/forex-markets-dollar.html

Inflation is by definition an increase in prices. The amount of money in the economy is called the "money supply". Some economists do argue that the money supply is the primary factor in determining inflation, but that's very different than saying that increases in the money supply are inflation, because the need for money in the economy (usually expressed in terms of the "velocity of money") can vary.

Prices of goods have different dynamics than the prices of assets. If you don’t understand how money supply relates to inflation I simply don’t know how to engage with you on this topic.

Respectfully, I'm not sure there's much point in proposing an uncommon heterodox theory if you can't engage with people who have a conventional understanding of the topic.

There is nothing heterodox about the concept of supply-side inflation

Consumer price inflation is a different thing than asset price inflation. The point you seem to be missing is that when you only say "inflation", it's by very widely dominant convention assumed to be consumer price inflation.

> Inflation is by definition an increase in prices.

Sure, I think everyone agrees on that but the CPI only measures a vary narrow range of goods and weights them such that it ends up ignoring some very obvious trends.

Most of the inflation could simply by accounted for by the drastic rise in stock prices, real estate values, etc. Even though the CPI/Fed doesn't care about those segments with regards to inflation does not mean it is not inflation.

CPI only measures a vary narrow range of goods

The basket of goods used to calculate CPI includes thousands of items covering all categories of consumption by US consumers. It includes housing, energy, education, health care, consumer staples, durable goods, etc.

CPI is such a bullshit measure precisely because of its definition. A lot of items have had their prices go down significantly due to globalization, efficiency in production, Chinese production, regulation or just by going obsolete and inconvenient. At the same time, the measures that matter - Healthcare, education, housing, have all gone up. Not to mention CPI does not account for wage stagnation.

At the same time, the measures that matter - Healthcare, education, housing, have all gone up.

I literally listed those three categories in my comment as components in the CPI calculation.

And you listed a lot of other components which pull down the overall CPI drastically, thus averaging out the increases in these categories, making the whole exercise pointless.

For instance, consumer goods, or electronic products, or automobiles, or gasoline, or literally n other products that have suffered from lower or stagnant prices.

When measuring the buying power of the US dollar, it's important to look at a broad based basket of goods that is consistent with how Americans spend their money. Focusing on just a few items that have gotten more expensive will deliver an incorrect result.

And yet they are delivering an incorrect result, since the 3 key goods are enablers of the rest of the basket. Without an college education (and thus a reasonable job these days), adequate healthcare or a proper roof over your head near your employer, you're not going to be buying cars or electronics. And I'm not alone in the economics field for criticizing the CPI, yet somehow a bunch of HNers find the very idea of it repulsive.

Without food, clothing or energy you're not going to be buying cars or electronics either.

At the end of the day, you gotta measure inflation based on where people are actually spending their money. Not on an arbitrary ranking of which goods are "enablers of the rest of the basket."

Seems like a weaker dollar was previously called for in response to currency manipulation from foreign countries.

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