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Comment by angelzen | Hacker News Reader

Basket of things with a vastly oversized share of cheap plastic crap made in East Asian sweatshops and or unrealistic substitutes. If 95% of Americans see a "personal inflation rate" significantly larger what the government claims, perhaps the government methodology is not particularly informative?

This is the point where the burden on proof lays with those that claim the government methodology is relevant: What is the "basket of things" composition and how many Americans have a spending profile anywhere near that?

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The Economist publishes a fun and simple metric called the Big Mac Index.

They present it as a way of looking at forex rates. If 1 USD buys you 1 swiss franc, but a Big Mac costs $5 here and 7 CHF there, then maybe the franc is overvalued. In any case you lose McDonald's purchasing power by converting.

But you could just as easily use it for inflation.

Big Macs are a stable product. A Big Mac sold in 1985 is very similar to one sold yesterday. Also, it includes a good mix of basic inputs. Land rents, transport costs, labor, and food ingredients.

Here's the raw data.

https://raw.githubusercontent.com/TheEconomist/big-mac-data/...

In the US, a Big Mac cost $2.54 in 2001 and $5.65 in 2021.

That works out to 4.0% annual inflation.

https://www.google.com/search?q=(5.65%2F2.54)%5E(1%2F20)&oq=...

The official numbers were 2% that entire time. Those come from a complex calculation using an always-shifting basket.

Although if we assume any technological progress in the last 35 years a big mac should probably have gotten a little bit cheaper. So the impact of inflation-causing-forces (aka, the reserve banks) is probably higher than 4%.

Technological progress in hamburger making? It’s meat between bread. There’s only so much progress you can make.

What keeps the CPI down is technological progress in other goods, like cars and TVs.

I worked part time at a McDonald's from ~1991-1995. At the beginning of that period, we immediately assembled Big Macs with freshly grilled patties, then let them sit in a warmer for <=10 minutes before throwing them out.

By the end of my tenure at McDonald's, we were cooking patties and storing them in steam warmers for up to 30 minutes before tossing them. The same patties were used for regular burgers and Big Macs. We'd create Big Macs as needed by demand, assembling them later.

I don't know the #s, but was told that this change was to reduce product waste.

Grilling equipment and process also changed over this time period, slightly reducing the number of staff needed to run the grill and reduce the likelihood of overcooked (and thus wasted) meat.

I imagine numerous other efficiencies/changes have been made over the decades that would influence the cost to make Big Macs.

It isn't my area, but something called "Total Factor Productivity" is up around +50% since 1985 [0].

There are a lot of ways to make things cheaper. The world has seen startling progress in logistics, organisation, science and tech in the last 30 years. Some of that is applicable to gathering food more cheaply.

I suppose maybe all the gains could have been eaten up (heh heh) by population growth. The underlying equilibrium here isn't static, at any rate. The real price of a hamburger will not be steady.

[0] https://www.ers.usda.gov/data-products/agricultural-producti...

Part of the logistics improvements over the decades is "just-in-time" delivery at multiple stages, from raw materials to store delivery. The pandemic knocked that out of whack resulting in supply chain issues. The cost of mitigating that in the short term and longer term undoing some of the over-optimization for efficiency at the expense of robustness will be passed on to the consumer.

>Technological progress in hamburger making? It’s meat between bread.

That big mac is at the end of a literally global supply chain. The cost of the tires on the car of the fry cook and the number of temperature sensors one can afford to put in the reefer ship that gets the tomatoes from Argintina all have an impact on the overhead of a big mac. And this is in addition to all the direct process improvements others have mentioned. Heck, the internet has opened up a whole new world of operational efficiency for the farmer that grows the grain that feeds the cattle. He can buy parts for his machines or compare spec sheets for fertilizers from his iphone while sitting in the cab of his tractor that almost drives itself. In 2001 he had to thumb through a catalog or call someone.

The right-to-repair movement is coming from farmers who are unable to do better than call someone, in 2021, because their large farm equipment (tractors, etc) are locked down more thoroughly than an iPhone, with large support contract requirements on top of that. Not that it changes your point, but the inability to fix things will certainly change how the US market behaves.

Just a few examples of things that I suspect have improved the cost of running a McDonald's (or network of them) or other similar businesses:

1) Self-order kiosks. Definitely reduce costs and required number of workers needed at any time substantially.

2) Scheduling applications. More efficiently schedule workers, trade shifts, etc.

3) Improved warehouse, distribution infrastructure, logistics, coordination software, optimization around deliveries, predicted usage, etc.

The self order kiosks are craptastic. I hate them. The mobile app is somewhat decent.

Honestly, what they need is a voice AI to take your order in the mobile app.

Interesting. Self order kiosks are amazing. I never have a clerk take my order incorrectly, never have to repeat myself.

McDonald's was one of the prototypes of the fast food industry. There was absolutely technological progress in food preparation to be made when they did that. It seems silly to assume they wouldn't keep that up.

Of course there is plenty of progress to make. You have to look at the whole value chain, not just the last step that happens at the restaurant. Bread and meat have to be made, preprocessed and shipped. Plenty of things along the way that are subject to optimization.

That’s like dismissing technical innovation in film making as it is eventually photons hitting eyeballs.

A couple potential sources of efficiencies:

- more reliable bun-making machines that need a lower ratio of human oversight / bun produced.

- more automation in packaging the meat patties.

There are ways. Automate the burger making machine. Reduce inventory, "just in time" supply chain. Pay the workforce less, aka "financial innovation". Substitute lower quality ingredients. Shrink the burger size. Harvard, here I come for my MBA.

So much innovation!!

> should probably have gotten a little bit cheaper.

The price of a big mac obeys supply and demand.

The actual cost of producing it is but one factor in many in the final price, and likely not the most important.

Where the hump is in the price vs actual volume of Big Mac sold curve actually is what matters.

The Big Mac index is pretty stupid though, since the ingredients in various countries are different and not sourced from the same place. Here en Europe McD tries to be somewhat middle class while I'm the us it's absolute trash.

Was going to say that. They have a green logo and regularly claim some of their products are hyper local now here in CH. I doubt they have to do this in many other countries.

Other than that price differences in food between $ and CHF are likely mostly explained because work hours simply cost a lot more around here.

> I doubt they have to do this in many other countries.

Not sure why you would think that. McDonalds is famous for catering it's menu and service to it's locale.

In Australia they were required to serve real chicken in their nuggets, and they're always advertising that they use locally sourced beef for their burgers.

They also rebranded in a sense to upmarket themselves, and started selling salads, cakes and coffees in order to sneak a foot into the Australian cafe scene.

> McDonalds is famous for catering it's menu and service to it's locale.

Hence, it’s a non standard product, and a pretty dumb basis for an index.

It was never intended to be taken seriously. The reason that it is taken somewhat seriously is because it turns out to be a much more reliable indicator than you might naively expect. That said, no one truly relies on it for anything more than a rough indication.

Dumb compared to what? A basket of goods curated by a government who have a vested interest in getting certain numbers out of the formula?

What do you mean by real chicken? What are McNuggets made of in the US?

I saw Americans amazed at Europe’s “real cheese”, and Coca-Cola with “real sugar”. I have never heard the explanation for “real chicken” yet.

This is funny and scary at the same time.

I believe the ingredients were always different due to Australia's "Allowed Substances" list and local ingredients availability. Similar to the controversy over "Pink Slime" for their beef patties never being an issue here, because the substance was already banned.

USA (according to https://www.mcdonalds.com/us/en-us/product/chicken-mcnuggets... ) :

Ingredients: White Boneless Chicken, Water, Vegetable Oil (canola Oil, Corn Oil, Soybean Oil, Hydrogenated Soybean Oil), Enriched Flour (bleached Wheat Flour, Niacin, Reduced Iron, Thiamine Mononitrate, Riboflavin, Folic Acid), Bleached Wheat Flour, Yellow Corn Flour, Vegetable Starch (modified Corn, Wheat, Rice, Pea, Corn), Salt, Leavening (baking Soda, Sodium Aluminum Phosphate, Sodium Acid Pyrophosphate, Calcium Lactate, Monocalcium Phosphate), Spices, Yeast Extract, Lemon Juice Solids, Dextrose, Natural Flavors.

Australia (according to the PDFs here https://mcdonalds.com.au/maccas-food/nutrition ):

Ingredients: Chicken, Water, Flour (Wheat, Corn), Canola Oil, Starch (1420, 1422, Corn, Wheat, Tapioca), Mineral Salts (450, 500, 451, 341, 327), Salt, Spices (Celery, White Pepper, Black Pepper), Sunflower Oil, Dextrose.

> What are McNuggets made of in the US?

It was Pink Slime for awhile. "Real Chicken" is the continuing strategy to claw back from the PR nightmare.

https://www.eatthis.com/mcdonalds-debunks-rumor-about-mcnugg...

https://colors-newyork.com/who-uses-pink-slime-list-2020/

Lol, McDonald's is "locally sourced" everywhere. It's been in their branding strategy for the last ten or so years.

I honestly had no idea, I just noticed the logo being not green in the surrounding countries. I haven't put a foot in any of their stores for over 15 years now

Big Mac's have gotten smaller though. So even there is an example of shrink-flation...

Really? I thought it was becouse I was a kid and smaller myself.

They also regularly reiterate that the index is meant partially in jest, and that you shouldn't expect it to generalize in any kind of highly accurate way. Also, the leap from forex to inflation is a big one; AFAIK they haven't argued the data is valid to use as you are here, which is different from judging exchange rates (it must surely be normal for various kinds of goods and services to inflate differently, right?). They simply point out that it works surprisingly well for something so simple.

Even assuming the 2% numbers are more representative of the average household, the 4% big mac number sounds entirely consistent with that.

TL;DR: this is interesting, but I don't see how this data clarifies anything.

Big Mac depends on the popularity of MacDonalds which is incomparably higher the US than most of the EU (or Switzerland). MacDonalds is just not popular and as sibling Galaxeblaffer mentioned it's not directly targeted as a lower class restaurant. In most places/countries I have seen Big Mac are not even advertised. Some of the local regulations would prevent the same Big Mac prepared, either.

Great - now The Economist needs to add a skimpflation factor, probably by doing something like buying a real Big Mac and then weighing the patty, and the wait time. (Although really everything about the experience can be skimped on, like taking away ketchup.)

This is a valid criticism of the methodology and if you look at a sibling of your comment, someone has posted a great resource that discusses some of this in depth. There are a lot of critics of CPI who feel it is manipulated by the BLS either intentionally or unintentionally. The methodology was also changed from being a "Cost of Goods Index" (literally the basket I described above) to a "Cost of Living Index" (which is intended to reflect the cost of maintaining a constant standard of living over time allowing substitutions in the basket but still suffering from the problem I describe above where your personal standard of living derives from the goods and services that you consume and therefore will differ from the index composition), and there are entrenched proponents of both the COGI and COLI methodologies.

I'm not an economist, but one fundamental problem with any consumer index (as far as I can see) is that as you become richer in absolute terms the marginal utility of any additional dollar goes down (eg your life doesn't change that much if you upgrade your already expensive phone but it changes a heck of a lot if you can't afford to buy enough food) and therefore poorer people experience far more harm from inflation than richer people. Not sure any index ever captures that effect adequately.

I'm not an economist, I'm far from it.

It sure seems like the big three these days are housing, food, and gas.

Housing is complicated, because it's less elastic. Moving sucks, is expensive and kind of emotional. It's sorta sticky because it's such an ordeal, so (I think) there's some scalping, charging a bit more because making a switch is just a pain in the ass.

Food is weird. if you can put together a hotplate and a sink, food can be relativly inexpensive, and tasty, but time consuming. If you can't it's pretty ugly. Personally, I'd probably just go with multivitamins and beer. Dual duty as calories and entertainment. That's a disaster long term though.

Gasoline sucks because it's a magnifying effect. Take a bag of rice. the rice gets trucked somewhere to get packaged. the bag gets trucked from a factory, the plastic gets trucked to the factory. Every step has a transportation cost, and it compounds.

I'm not rich. I could take a long break from work if I needed to, but I gotta work. I'm very lucky to be where I am. CPI makes a lot of sense for me.

I think it's not so great because a cop and a teacher couple with no kids, totally reasonable professions, damn near a Rockwell painting, struggle.

I don't think it'll ever be easy for everyone. but damn. does it have to be so damn hard at the bottom? I think the CPI doesn't really work out for the bottom N% and I'm not really sure of the value of N. I hope N is still kinda small, because if N gets big, things get really ugly for everyone.

I dunno. CPI is a metric. it has a meaning. mean median and mode have meaning, but they don't tell the whole story. I think CPI highlights some things, but don't think for a second it's the whole story.

That harm does not capture the reduction in debt caused by inflation though. Inflation benefits debtors over creditors, even if it also effectively lowers wages.

That's true although if you're spending all of your income on debt service and basic living costs, then reducing the real value of the nominal of your debt doesn't in fact increase your standard of living at all. Theoretically you're better off, but all of your income still goes on debt service and basic living costs. The basic living costs have gone up in nominal terms while the debt service is still the same. It's depreciated in real value but the nominal is still the same.

On a statistical basis, the poor holds more debt. From that basis, inflation is good.

A lot of people don't realise inflation is essentially a stealth cash wealth tax. It applies to savings, debt, dollar-denominated contracts, etc.

But as you correctly put it, it's a cash wealth tax. The poor have all the wealth they do have in cash. Similar for those somewhat above poverty, if they done go deep on debt.

The poor don't hold debt. "I live in a nice house that's still owned by the bank" is not poverty.

And you might find that even many of the rich (who have far more in assets than they have in debt or cash) will still have more debt than cash, because while investing on debt is generally considered stupid, investing on debt that could be fully cleared by the the object invested in (house/land) as collateral is the exception. People rich enough to buy houses for renting out rarely pay them in cash. The winners of inflation debt decay are not who you think they are.

> The poor have all the wealth they do have in cash.

I would think that the poor have no cash… that's why they're called "poor" after all.

The bottom 50% of income earners can barely cover the 'necessities' (housing, food, transportation, healthcare):

* https://ofdollarsanddata.com/the-biggest-lie-in-personal-fin...

> I would think that the poor have no cash… that's why they're called "poor" after all.

They have contracts denominated in cash—for example, their wages from employment. That's where inflation tends to hurt the most since wages tend to trail behind inflation (or deflation). And of course being "poor" doesn't imply that you literally have zero savings, though you probably don't have enough to be worth the hassle and expense of a brokerage account to invest in stocks, ETFs, or mutual funds. For small amounts the transaction fees alone would be more than the gains.

Regarding the article you cited, it occurs to me that the authors never mentioned how long any given household remains in a particular category. If I took a year-long sabbatical from work, for example, then I would end up in that "lowest 20%" group with zero income while I lived off my savings, but that doesn't mean I'm experiencing any kind of financial difficulty. The same goes for students still receiving support from their parents, or for anyone who is retired and living off of a lifetime's worth of investments (though probably not pre-tax 401(k)/IRA, depending on the study methodology, since these distributions are generally considered "income" for tax purposes). "Lowest 20% by income" is not a fixed group. This is apparent simply from the fact that expenses cannot exceed income indefinitely; eventually you must either increase your income, at which point you are no longer counted in that statistic, or else decrease your expenses. But the idea of a shifting group of households which temporarily earn less than they spend paints a very different picture than the one the article implies.

It's not a stealth cash wealth tax. It's literal debt forgiveness. You can even call it a collectivized form of continuous insolvency. E.g. instead of every 20th debt contract being forgiven entirely 5% of every debt contract is forgiven.

The benefit is that if the creditors (mostly upper classes) refuse to forgive the debt then you don't need an angry mob with pitchforks to cancel the contract (revolution).

Inflation is "progressive" in this sense, however everyone wealthy would hold mostly assets, not cash.

They still hold a decent amount of cash as a percentage of their portfolio. 10% of a million dollar portfolio is still $100k which is more than the average joe has. He would use that money to buy a house instead of letting it sit around.

Yes, bigger down payments suck but that is mostly a zoning/housing supply issue.

I’d guess that many (perhaps most) wealthy households hold far more dollar-denominated debt in their real-estate and business interests than they do cash.

It's very rare for wealthy people to hold 10% of their assets in cash (or even cash equivalents). When they purchase real estate they usually take out loans secured by their other assets.

Inflation is good only for long term debt.

Creditors take inflation into account when making loans.

Only higher than expected inflation helps debtors. Lower than expected inflation hurts debtors.

I'm not sure why you think Creditors would consistently underestimate inflation. Maybe they do, but why would they?

One thing I am sure of, is that when inflation expectations change a lot so that there is a lot of doubt as to what future inflation will be, then creditors charge a higher premium for that perceived increase in inflation risk. That hurts debtors.

> Creditors take inflation into account when making loans

No, they do not, because they typically only hold the note for a few days before it gets securitized and sold onto a market that is pinned by a very large, inflation-agnostic player: The Fed.

Now, we'll see what happens to this market if and when they begin to taper, but I think all the non-Fed players in this market remember what happened the last time they tried it, and they're all betting, correctly, that Powell will be forced into not only NOT tapering, but increasing purchases.

All of these markets: treasuries, mortgages, auto loans, and junk bonds, know for a fact that there will always be an artificially high bid for their toilet paper. Why would they care?

What you say makes logical sense, but is hard to square against the fact that, as a nobody, I can borrow $1M at under 3% fixed interest for 30 years to buy a house.

The creditor who will ultimately hold that paper has a very different outlook on inflation rates than I do, but I’m happy to take the loan, especially since a side-effect is having a place to live.

> What you say makes logical sense, but is hard to square against the fact that, as a nobody, I can borrow $1M at under 3% fixed interest for 30 years to buy a house [...] The creditor who will ultimately hold that paper has a very different outlook on inflation rates than I do,

Such questions deserve answers.

There is a lot that I skipped over, not wanting to get into the weeds of economic theory and start more arguments about whether the Fed controls rates or whether markets do (orthodox theory says markets control real rates and the fed only controls nominal rates, and thus inflation), and how savings demands respond to interest rates, and whether mortgages are risk free rates or not.

All of that complicates the simple picture I painted, but I think that picture is basically correct.

Suffice it to say that in terms of risk-free rates, the creditor's alternative is to buy a TIPS -- inflation protected bond -- which currently yields -1%

https://www.cnbc.com/quotes/US10YTIP

So we are living in a very low interest rate world right now.

Given that most likely your mortgage is government guaranteed (what mortgage isn't?) the entirety of the 3% you are paying is just as an inflation hedge plus some risk of pre-payment -- again, I have no idea what kind of points you have and the specific terms of the loan.

If inflation was believed to be zero, you could probably get the same mortgage for less than 1%, maybe even 0%.

We live in a world with very low real rates, but that does not mean that creditors don't take inflation risk into account.

> Suffice it to say that in terms of risk-free rates, the creditor's alternative is to buy a TIPS -- inflation protected bond -- which currently yields -1%

TIPS have a yield that is referenced to the CPI (attempting to present a real yield), not a yield expressed in nominal dollars, so direct comparisons against mortgage rates (inherently nominal yield) are not very productive.

The close equivalent to the 30YR mortgage rate is either the 10-year Treasury (currently yielding ~+1.6%) or, if you insist on matching maturities, the 30-year (currently yielding ~+2.0%)

So, whatever risk premium the lender is demanding on a 0-points, 30-year fixed mortgage, it's a maximum of 1.4% (3.0%-1.6%). As a borrower, I'll happily take that deal.

> What you say makes logical sense, but is hard to square against the fact that, as a nobody, I can borrow $1M at under 3% fixed interest for 30 years to buy a house.

that's canceled out by prices being higher because every other buyer has access to the same rates. Your monthly payments works out to be the same in the end because everybody bids up to the max they can afford.

That 3% fixed interest rate isn't a real market rate. Most of those mortgages are purchased by Fannie Mae and Freddie Mac. Those companies are too big to fail and sponsored by the Federal government. If they went away then 30 fixed mortgages would barely even be available, or at least the interest rates would be far higher.

A jumbo loan (such as the quoted rate above from today for a $1MM mortgage) is not eligible for backing by Fannie Mae or Freddie Mac.

> I'm not sure why you think Creditors would consistently underestimate inflation. Maybe they do, but why would they?

Hard to predict, in general. Would you have predicted we’d be looking at 5% inflation right now, three years ago? We haven’t seen inflation like this in decades.

> That hurts debtors.

Only if they have variable-rate loans.

The broader point here is that it’s creditors (and the wealthy) who bemoan inflation the most because it means their rents are going to be worth less.

> Creditors take inflation into account when making loans.

How? I'm pretty sure that is determined by the market. 10 year treasuries are yielding 1.587% which is less than inflation and people still buy them because your alternative is cash with even worse returns.

Upper middle class and rich people benefit from debt. Lower middle class and poor people suffer from it.

- lower middle class/poor: A cleaner working hand-to-mouth taking a payday loan isn't inflation hedging. She's paying through the nose for the privilege of a 33% loan because she's a risky debtor.

- middle class: I make money on my mortgage. I see my 1.22% 20 years fixed mortgage melt away against a salary that is raising with inflation. Plus I get rewarded by government with a tax deduction. Similar story for our rental.

- rich: Elon Musk can live off margin loans against a fraction of his investment portfolio if and when it makes sense.

> middle class: I make money on my mortgage. I see my 1.22% 20 years fixed mortgage melt away against a salary that is raising with inflation. Plus I get rewarded by government with a tax deduction. Similar story for our rental.

The mortgage interest tax deduction only applies if you itemize, which literally 90% of people do not do as of 2019 IRS statistics. Effectively, there is no mortgage interest tax deduction for middle class since the 2017 tax cut ACA jobs act.

I don't live in the US. Plenty of places have some form of mortgage fiscal stimulus. Even without the fiscal advantage, I would still be making money on this.

> see my 1.22% 20 years fixed mortgage melt away

Wow, if you don't live in the US, where are you getting a 20 year fixed rate?

Honestly just curious as I thought those were really only a US thing.

The mortgage is in Belgium. Friends have even lower fixed rates. Some others have negative interest rates on their adjustable ones. Their bank literally pays them.

Wow, I'd heard about that but it seems so alien to me here in ireland (we get at best 2% ten year fixed, and that's only under certain circumstances).

Mind you, it's literally impossible to get evicted from your primary home here, which is presumably what drives the differences.

> Their bank literally pays them.

How does this work? Do they get a free house and a check cut monthly? Or is the mortgage cheaper than what it would have been?

My bad. I did not know anywhere else offered mortgage incentives. Chalked tax deduction up to being uniquely US way of implementing regressive taxes.

> What is the "basket of things" composition and how many Americans have a spending profile anywhere near that?

Well:

> 2. How is the CPI market basket determined?

> The CPI market basket is developed from detailed expenditure information provided by families and individuals on what they actually bought. There is a time lag between the expenditure survey and its use in the CPI. For example, CPI data in 2020 and 2021 was based on data collected from the Consumer Expenditure Surveys for 2017 and 2018. In each of those years, about 24,000 consumers from around the country provided information each quarter on their spending habits in the interview survey. To collect information on frequently purchased items, such as food and personal care products, another 12,000 consumers in each of these years kept diaries listing everything they bought during a 2-week period.

> Over the 2 year period, then, expenditure information came from approximately 24,000 weekly diaries and 48,000 quarterly interviews used to determine the importance, or weight, of the item categories in the CPI index structure.

* https://www.bls.gov/cpi/questions-and-answers.htm#Question_2

The BLS' CPI isn't written on some set of secret scrolls. If you're curious about how it is configured just look it up.

> What is the "basket of things" composition and how many Americans have a spending profile anywhere near that?

The BLS isn’t hiding this information, it’s publicly available. The burden of proof would be on you to provide research on why that methodology is incorrect.

https://www.bls.gov/news.release/cpi.nr0.htm

> The CPIs are based on prices of food, clothing, shelter, fuels, transportation, doctors’ and dentists’ services, drugs, and other goods and services that people buy for day-to-day living. Prices are collected each month in 75 urban areas across the country from about 6,000 housing units and approximately 22,000 retail establishments (department stores, supermarkets, hospitals, filling stations, and other types of stores and service establishments). All taxes directly associated with the purchase and use of items are included in the index. Prices of fuels and a few other items are obtained every month in all 75 locations. Prices of most other commodities and services are collected every month in the three largest geographic areas and every other month in other areas. Prices of most goods and services are obtained by personal visits or telephone calls by the Bureau’s trained representatives.

> why that methodology is incorrect

A lot of people take issue with hedonic adjustments, substitution threshold, etc - but the specific methdology used is far less important than the fact that they're simply lying about the data.

For one example, the obvious elephant in the room is the shelter category. In the last year, rents are up 12%[1], and home prices have soared nearly 20%[2]

Yet, from your own source, the BLS is claiming 3.2% for the shelter category.

It's not so much that the methodology is wrong (although that argument could be made as well), but that they're flat out lying.

And then you have to contend with the Gell-Mann amnesia effect: if they're lying to your face about the shelter category, what makes you think the data in any of the other categories, for which you have less third party data to corroborate, are not also completely fabricated?

[1] https://www.apartmentlist.com/research/national-rent-data [2] https://fred.stlouisfed.org/series/CSUSHPISA

You've got some big misunderstandings here.

1) The rent data you cite is for new leases. Since new leases only represent a fraction of total leases, they aren't going to agree with tracking overall rent.

2) When you buy a house, you get two things: shelter and an investment asset. The inflation statistics are only interested in shelter, not investments, so they disaggregate them. They do this by computing the rent for an equivalent dwelling. For this reason, the home price index won't agree with the inflation statistics either.

ok.

> 1) The rent data you cite is for new leases. Since new leases only represent a fraction of total leases

The vast, vast plurality of residential leases are for 12 months - and the vast majority are for 6, 12, or 18 months. So no, you're flat out wrong, here. We're talking YoY numbers, so these values reset literally at the end of the timeframe we're discussing.

> 2) When you buy a house, you get two things: shelter and an investment asset.

Cool. Home ownership is at a multi-generational LOW in the United States, with a huge proportion of the HN demographic comprising those currently priced completely out of this market. The OER metric weighting is not updated frequently enough to sufficiently account for this fact.

The reality is that between shelter, fuel, and food, our cost of living is skyrocketing on the order of 12% per year, and the CPI understates this for obvious political reasons. The real yield on a 10y treasury is about -10%, so it's no wonder that obvious scams like AMC, JPEG NFTs, and Shiba Inu (the coin, not the breed) are so popular. You reach for yield any place you can.

==For one example, the obvious elephant in the room is the shelter category. In the last year, rents are up 12%[1], and home prices have soared nearly 20%[2]==

The median person does not see a 20% increase in housing prices if they are not currently purchasing a home. I have a 30-year mortgage and my housing costs have not increased since I purchased it. Add in the 65% home ownership rate and it isn't out of question that a large portion of the country isn't seeing as much housing inflation in their actual budgets.

Home prices are not included in the shelter category. Homeowners are considered to be paying an implicit rent as their cost of shelter, which is based on the market rate of a comparable rental.

Your source for rentals looks at the cost of new leases. The BLS methodology looks at the most recent rent of a sample of units, regardless of when the rent was set.

We would expect your source to report a higher increase, because its methodology is more responsive to short term changes. That does not show that the BLS is lying.

> and home prices have soared nearly 20%

I wonder if they're able to discount this because the low interest rates mean that monthly payments have not increased 20% for most mortgage borrowers.

If you're talking YoY numbers, which we are, this would actually work against home buyers because rates are higher now than they were a year ago.

What goods and services, what weights, what substitutions? Devil's in the details.

Good place to start your research: https://www.bls.gov/cpi/

I'm not taking the bait. As far as I'm concerned, CPI methodology is a truism worthless by itself. Like saying "goods and services cost money". If you want to argue the specific numbers issued by the government are representative of the evolving purchasing power of the dollar, you have to do the work to prove it.

What goods, what weights, what substitutions?

> What goods, what weights, what substitutions?

The government has done this work and open sourced their calculations. Your unwillingness to accept it isn't proof that it doesn't exist.

To illustrate my point, here is a piece of the "Item replacement and quality adjustment" methodology. I cut it off where the table starts: https://www.bls.gov/opub/hom/cpi/calculation.htm#item-replac...

>Item replacement and quality adjustment

One of the more difficult problems faced in compiling a price index is the accurate measurement and treatment of quality change due to changing product specifications and consumption patterns. The concept of the CPI requires a measurement through time of the cost of purchasing an unchanging, constant-quality set of goods and services. In reality, products disappear, products are replaced with new versions, and new products emerge.

When a data collector finds that he or she can no longer obtain a price for an item in the CPI sample (often because the outlet permanently stops selling it), the data collector uses the CPI item replacement procedure to find a new item. Each priced item stratum in the CPI contains one or more ELIs. CPI commodity analysts have developed checklists that define further subdivisions of each ELI. When seeking a replacement in a retail outlet, the data collector first uses the checklist for the ELI to find the item sold by the outlet that is the closest to the previously priced item. Then the data collector describes the replacement item on the checklist, capturing its important specifications. The CA assigned to the ELI reviews all replacements and selects one of three methods to adjust for quality change and to account for the change in item specifications.

The following example describes the most common type of quality adjustment problem. Assume that a data collector in period t tries to collect the price for item j in its assigned outlet and is not able to do so because the outlet no longer sells this item. (A price for item j was collected in period t–1.) The data collector then finds a replacement item and collects a price for it. This replacement item becomes the new version v+1 of item j. The commodity analyst decides how the CPI treats the replacement. The commodity analyst has the descriptions of the two versions of item j. In addition, he or she has the t–1 price, , for the earlier version v and the period t price, , of the replacement version v+1. The following matrix displays the information available to the commodity analyst:

>Basket of things with a vastly oversized share of cheap plastic crap made

The "basket of things" is made from the ratios of things consumers buy. BLS explains the methodology and lists the basket, and how it evolves as people buy less horse carriages and more cars, less giant radios and more iPhones, and so on.

Making a basket that better represents inflation would be worth a lot of money, and a lot of groups try, but none really do any better than the BLS.

For example, the Billion Prices Project out of MIT tracks a vastly larger number of things, but ends up with the same inflation rates http://www.thebillionpricesproject.com/

You could … you know Google it yourself.

https://www.bls.gov/cpi/methods-overview.htm

Ever consider you are special? If you’re posting on this site, chances are you are more educated, richer, and better employed than most of your compatriots in whatever country you’re in. Of course luxury goods inflate faster. We can afford it.

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