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Comment by Wolfenstein98k | Hacker News Reader

"Food Prices Are Soaring Faster Than Inflation and Incomes"

...Food price rises ARE inflation!

From the article:

> In the U.S., prices rose close to 3% in the year ending Jan. 2, according to NielsenIQ, roughly double the overall rate of inflation.

The study found that food prices are rising faster than inflation.

3% is high, and 1.5% over inflation is also concerning, but I think a lot of people are jumping to conclusions based on the headline. Those inflation numbers would go unnoticed by most during normal times. We’re only seeing these headlines because inflation is a popular media topic right now.

Do we have a way of seeing periodic media obsessions? Seems like a good AI challenge, although would require a good corpus.

I saw another analysis suggesting a 75% drop in media coverage of Biden vs. Trump, at this same point in each’s presidency. That’s a useful statistic that I have a hard time finding in a comprehensive way.

>> Do we have a way of seeing periodic media obsessions?

We have dozens. Countless companies have tools to show you how things are happening on social media, and all the big new outlets mirror their content to social media. At the most simple level, basic word counts can track how issues appear and disappear. When you hear about a 75% drop in coverage of "Biden v. Trump" that is almost certainly taken from the number of times those two names are included in news reports. Counting words or highlighting the use of new words does not require AI.

Topic modeling is a better technique than simple word counts. Topic modeling can use ML.

Disagree that this is alarmism. The question is whether the way inflation is being measured matches the way we use it to make decisions. Graphs like AEI's Chart of the Century [1] have been highlighting for years that inflation numbers are inappropriately averaging decreasing costs for discretionary purchases, while costs for essentials like healthcare and education grow out of control. When food also starts outpacing the average (historically it has paralleled wages in the USA), you really have to ask what inflation is measuring.

Low inflation is essential to justifying the monetary easing policies that have been sustaining the stock market through the pandemic... so it is important for everyone to keep an eye on how dialog changes around these numbers.

[1] https://www.aei.org/carpe-diem/chart-of-the-day-or-century-3...

Education and healthcare have pathological cost growth in large part because they aren’t subject to ordinary market pressures (the consumers are either over a barrel and can’t say no or aren’t paying in the first place). We need to fix them but it would be a mistake to let those pathologies drive monetary policy.

I don't have many proactive opinions about monetary policy, but it's worth noting that health care and education together make up 25% of US dollar-valued GDP and significantly more than that of GDP growth. If their pathologies enable them to successfully suck up spare dollars, that is a meaningful hole in the bucket for efforts meant to impact other behaviors.

The food inflation number was isolated in the article to be around 3%.

Much of that increase can be traced back to increased shipping costs during COVID lockdown.

Monetary policy isn’t the only or even the primary driver of inflation. In this case, the inflation comes from increases demand on a portion of the food supply chain (shipping services).

The alarmism in the comment section largely comes from people misreading the headline. The article is about soaring food costs in developing nations, but the comment section is treating the headline as if it’s about US food prices.

The article also discussed the fact that US prices are temporarily buffered by the supply chain but that big providers like GM are discussing price increases do to sustained cost increases. This is alongside existing practices like shrinkflation that make it harder for a CPI to accurately benchmark costs. It makes sense that articles and readers are looking for leading indicators.

> Monetary policy isn’t the only or even the primary driver of inflation.

After two degrees in economics, my perception is that monetary policy is definitely considered a primary driver of inflation, probably THE primary driver. But this is probably irrelevant - see below.

> In this case, the inflation comes from increases demand on a portion of the food supply chain (shipping services).

Yes, for example: "in North America... a shortage of both shipping containers and truck drivers".

> The alarmism in the comment section largely comes from people misreading the headline.

To me, it feels alarmist for Bloomberg to consistently say "inflation" instead of "price increases" throughout the article. A temporary problem with supply/demand is not the same as inflation. Food prices will almost certainly fall back to their normal trajectory within a year or two, once supply/demand normalizes, whereas if there was truly inflation that would almost certainly NOT occur.

> Graphs like AEI's Chart of the Century [1] have been highlighting for years that inflation numbers are inappropriately averaging decreasing costs for discretionary purchases, while costs for essentials like healthcare and education grow out of control.

To be fair, three out of the seven categories that are under inflation can also be considered "essential". Imagine the outrage if cars (or more generally, transport) and clothing increased 2x over inflation, or if cellphone/internet access became less and less affordable (remember all the "internet should be an essential service" headlines at the start of the pandemic?).

yeah, i don't love my discretionary/essential breakdown there. it's more about the combo of essential + non-exchangeability -- you need a car but there are a lot of options, but when you need a hospital there's usually one best place. (and education is non-exchangeable due to competitiveness).

the other big correlate is just goods vs services (even textbooks are service-like due to editions). I am not an economist but I'm really curious whether rapid depreciation caused by planned obsolescence of e.g. consumer electronics is causing a poor measurement of price trends in that area. Today's iPhone will cost much less next year, but the cost of maintaining a cutting-edge smart phone keeps going up.

> When food also starts outpacing the average (historically it has paralleled wages in the USA), you really have to ask what inflation is measuring.

inflation is measuring the value of a currency. CPI is a way to infer inflation from the nominal price of consumer goods; but it is not the definition of inflation. put another way, if an apple costs twice as much as it did last year, that fact is not enough to say whether the currency inflated.

"the value of a currency" isn't a physical reality; it is only observed through price fluctuations. so, defining it this way is just kicking the can. The fact that you can measure very different values by focusing on Forex, labor costs, or various CPI baskets is exactly the concern with gaining too much comfort from any single-number summary in the face of price changes that are impacting daily life for millions.

I would consider the value of currency to be as real as the value of a software license, even though neither is a physical item per se. I guess that's somewhat philosophical.

my real point here is that nominal price increases do not necessarily imply inflation. if the price of one type of good is increasing much faster than the others, a better explanation is that the real value of those specific goods is increasing. does this matter to ordinary people buying food? not really. their main concern here is the nominal price of food compared to their nominal earnings.

We should say "food prices are soaring faster than the average price of the consumer price index basket."

I agree. I may be being pedantic, but I think food prices are (or should be) the first and most important component of what we measure inflation with.

It's much clearer to say "the rest of the basket hasn't risen above normal yet, but I am concerned the headline I quoted will mislead people who don't understand inflation.

You are making a lot of assumptions here. Chief among them is that the price of food must always be strongly tied to the prices of other things in the consumer price index. But clearly, that does not need to be the case. Especially after how unsustainably humans use farmland:

https://amp.theguardian.com/environment/2015/dec/02/arable-l...

Why? Food prices are usually few percent (6-18% in the western countries) of total household expenses. If you want to look at something that impacts people way more, look at rent or house prices.

Pretty sure (couldn’t read most of the article, paywall) this is talking about worldwide though. (First word of the article is “Global”)

>> Food prices are usually few percent (6-18% in the western countries) of total household expenses.

Maybe for rich people. If you have an income of 2000/month, with the first 1000 or so going to rent, food is likely your second largest expense.

Here are the most recent weights for official US CPI calculations: https://www.bls.gov/cpi/tables/relative-importance/2020.htm

Housing is by far the largest component (42%) (contrary to the common misconception that housing is not in the CPI), followed by Food and Beverages (15%) and Transportation (15%). If you want to up-weight food, you must necessarily down-weight some other component. The prime candidate would be shelter (most other categories are already much smaller than food), but that's of course not the answer that CPI-doubters are looking for.

But the CPI targets a generic US consumer. I would argue that poor people have a different priority list than the rich. The US economy is increasingly polarized with a widening gap between rich and poor.

I am curious as to whether the CPI targets the average person or the average consumer. Rich people spend more. They consumer more and are therefore overrepresented in most consumer-related measurements. Is the CPI meant as a measure of the cost of living or a tool for the calculation of available spending power?

"Food prices are not properly accounted for in inflation measures"

There, fixed the headline.

No, one component of “inflation” (defined as the rise in the consumer price index) rises much faster than the others.

It's entirely possible that all the things in the consumer price index and other measures of inflation rise overall faster than the headline inflation measures - they do some weird things with weighting and so-called hedonistic adjustments which means that it's probably literally impossible for someone to experience inflation that low. For example, they compensate for the supposed increase in values from, say, flash drives increasing in size, computers in speed, and TVs in size in a way that doesn't make sense if you can't even save money by buying a smaller flash drive or slower computer, or you need a faster PC to do the same things, or if the 32 inch TVs have the same resolution, sound and picture quality as a 24 inch of yesteryear and you have to go up to 40-50 inches to get something actually equivalent in quality to a 32 inch TV from years ago.

For a while, one of the key US inflation measures even assumed that if people's medication went up in price massively they'd substitute it for whatever medicine hadn't exploded in price even if it was for some completely different condition! And I'm not convinced that, even for things which genuinely are substitutable like different kinds of food, it's actually possible over the long term to substitute your spending in a way that matches up with official inflation figures.

Food is just one part of the basket.

Are they saying that food prices are driving the inflation vs the other factors? Housing is going up fast too isn't it?

What do you mean by 'driving'?

Causally, inflation in the US is driven by the Fed's 2% average inflation target.

How those 2% distribute amongst the basket of good is a different question, of course.

https://fred.stlouisfed.org/series/CUSR0000SEHC

https://fred.stlouisfed.org/series/CUUR0000SEHA

I believe those are the two housing sub components of the basket, with owners’ equivalent rent weighted more than the rent one. Eyeballing it they both look under 2%.

So what gives?

Does anyone have the data sets and the formulas used to calculate the CPI? No, I don't think so, because they are hidden.

Until the data used to calculate the CPI is open, it is all speculation.

That’s a good point. The CPI has a huge impact on policy and really just about every financial thing in our lives. It’s kind of insane that we don’t have good visibility and oversight into it!

https://download.bls.gov/pub/time.series/

Be sure to refer to overview.txt and for more high-level details refer to https://www.bls.gov/cpi/data.htm and https://www.bls.gov/cpi/methods-overview.htm — you might also find relevant information on weighting here https://www.bls.gov/cpi/tables/relative-importance/home.htm

Typical entries in the AP (Average Price) series look like: APU0000701322 2015 M05 1.335

where APU0000701322 is a pound of spaghetti or macaroni, and M05 is May.

I thought of telling you off for spreading misinformation to incite, but I figured that saying it this would gets my point across more strongly.

You made the right choice and those links were helpful.

An "Average Price" has to be calculated from survey data.

That survey data is what is not open as far as I know: https://www.bls.gov/opub/hom/cpi/data.htm.

Thanks for posting, that was my question when I saw the headline.

I have a pretty imperfect understanding of inflation, but wouldn’t increased food and energy prices mean that a consumer will have less money to spend on discretionary purchases? Ie, aren’t food price rises DEflationary?

No, inflation is the increase in the money supply resulting in each unit of currency having less real value.

Food price rises are not inflation. Inflation is an increase in the general price level, and specifically it's not an increase in the prices of a selected set of goods.

There is no significant inflation measure that does not include food.

I agree they're not the entirety of the basket, but they are a core component.

There is no "general price level".

There is a "general price level", it's just the price level of a sufficiently broad basket.

Food and Beverages make up 15% of the US CPI basket. Some other major components are Housing (42%) and Transport (15%).

Here's the full list, which make up the "general price level": https://www.bls.gov/cpi/tables/relative-importance/2020.htm If you believe food is underweighted, then what category do you believe is overweighted?

It is the inflation for the poorest population. What does it matter that 4k tv's are cheaper to people who spend all their money on necessities.

Call it a price rise. But it's not inflation. You don't get to re-define what economic concepts mean.

Would it not be fair to say that different subpopulations experience different effective inflation rates because they buy different things?

Seriously, would it? I’m not an economist. I am aware of RPI/CPI, and inflation is measured independently in different countries within the Eurozone, so it’s not like we can’t have multiple measures for different purposes or populations.

The concept of inflation is an attempt to measure price increases that are due to general monetary factors, as opposed to price increases that are due to market forces in specific industries. It’s fair to try and measure the practical household budget of a typical family, and many governments do, but calling this measurement “inflation” tends to mislead people into thinking that any increase must be because there’s an oversupply of money.

You can definitely say that the cost of living has risen at different rates for different subpopulations, but you can't say they have experienced different rates of inflation. Inflation is change in the general price level of the economy, and an economy is something that we can study at a macroeconomic level. In this sense, unless you regard a social group as being an economy on its own, with its own GDP, balance of payments, and whole set of macroeconomic variables, we can't speak of it as experiencing a particular inflation rate.

>Would it not be fair to say that different subpopulations experience different effective inflation rates because they buy different things?

Inflation is measured based on the changing the value of a dollar. So no, you can't have different inflation for different people.

You can have a separate idea of a poverty line or cost of living. But that's a different concept and would need different measures.

I've been saying this about housing for a while.

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