No, the real inflation rate isn’t 15 percent | Hacker News Reader

No, the real inflation rate isn’t 15 percent

fullstackeconomics.com

46 pointsAmorymeltzer32 comments

Some personal anecdotes. I did undergrad 12yrs ago in a university in Southwest. My niece recently enrolled in the same program in the same school - the tuition my sister and her family are planning to pay for her is easily double of what I paid (or May be more if I count her cost of living such as university residence).

My sister in law has diabetes and the insulin prices they pay has also doubled compared to what she used to pay 10yrs ago until she moved to Canada recently.

I have been trying to buy a house for a while now and prices here in the area where I lived and live now have easily more than doubled (facepalm for not buying 5yrs ago). Same thing with rent in any average North American city.

These are the three most basic expenses a family in a first world country is expected to bear. All of them have easily doubled in the last 10yrs.

I am not sure in what way the Fed and their economists are measuring inflation but it sure as hell doesn’t quantify the hardship average families have these days especially when the wages haven’t gone up. I may be the lucky one working in tech but certainly my sister or the SIL’s family are not. Even for me the housing prices have easily outpaced my tech salary growth in the past few years where I am.

I just find the policy makers such as Fed are delusional when they say everything is fine because inflation is averaging 2%. You can come up with whatever number you want, but at the end if it’s disconnected from the economic reality and primary expenses for a family it doesn’t matter because your policies are just not going to affect the middle class as we have been seeing in past decade or so.

In Germany, the inflation rate is calculated by looking at the development of prices of a set of goods that an average consumer would buy. That will include things like electronics that become cheaper all the time which skews the rate for people who do not buy these goods. It might be similarly done in the US?

Edit: it seems so: https://en.wikipedia.org/wiki/Market_basket

The three examples you cite, Education, Medicine and Housing are the three areas where prices have increased greatly in the last 20-30 years. There are very few others.

Part of the problem with inflation calculation is giving the right weight to those.

According to BLS data, drugs have had slower inflation than the CPI, averaging 1.59% since 2011: https://www.in2013dollars.com/Medicinal-drugs/price-inflatio...

Insulin in particular has been a national contraversy around price increases, so I suspect its cost went up faster than the average drug.

BLS claims that medical care overal inflated at an average of 2.74% annually since 2011, which is faster than CPI https://www.in2013dollars.com/Medical-care/price-inflation/2...

Education has been bad, at 10.84% https://www.in2013dollars.com/Education/price-inflation/2011...

Rent saw 3.21% https://www.in2013dollars.com/Rent-of-primary-residence/pric...

Well what % of your annual income are going to those.

I agree luxury good should have a weight of 0 but Housing and Education is need by everyone and are a major part of where your salary go to.

And consist of probably 80% of the fixed expenses of most people. So while the exact weight is up for debate, saying that inflation is incredibly high is a reasonable argument.

Inflation is about money supply. If the price of insulin is high because your money is worth less, that's inflation. If the price of insulin is high because a pharma executive is stepping on your neck, that's not inflation. How much you spend on services provided by poorly regulated monopolies is irrelevant.

Doubling over 10-12 years is an average annual inflation rate of about 7% . It's not 2%, but it isn't 15% either.

I agree, 7% sound about correct. But not 15%

So it sounds like we all agree the authorities are under-reporting inflation. Now we are only arguing how much?

I know that gasoline prices here in Texas have gone from $2 a gallon to $3 a gallon since 2020. However when I look at the history it was up to $3 a gallon back in 2012 so maybe $2 was just low? Food prices are up, but not by a huge amount unless you are looking at meat.

To be honest I think that overall inflation isn't a good measure. Instead I think categorized inflation measurements make more sense. Food inflation, transportation inflation, housing inflation, wage inflation etc...

It seems like a dollar doesn't really have a fixed exchange value between goods like we think it does. Probably because of differences in the availability of credit. For example, the influx of point of sale credit driving bicycle sales.

The Fed is guided by "core inflation" which excludes fuel and food as they are both volatile.

I don't know if you can remember the commodity price "superspike" in the three years before the great financial crisis of 2008. Oil was way high, and so was wheat, and copper, and coal, and steel, ...

There is an argument that they don't weight housing, health and education correctly, but the argument has to be about why that matters more now than it did before, since the Fed hasn't changed its methods. If it was underweighting housing in 2016, and it's underweighting it using the same formula now, what has changed?

I won't get into the weeds of that.

I think most would agree that the obvious changes impacting housing are:

1. Low interest rates with loose monetary policy

2. Demand increases due to covid (people want bigger, better homes if they're stuck there)

3. Lowered supply (people not moving during pandemic; new build and renovation halts)

Education is rampantly increasing because the government has decided to remove all risk, essentially removing default risk from lenders so they'll loan to anyone with a pulse, regardless of expected roi.

Healthcare is facing the same governmently supported interference.

Edit: with regards to housing, the federal government just proved that they are willing to commender private property without just compensation which has just heavily skewed rental risk for landlords so they will now be demanding higher premiums for the same product due to unquantifiable shifts in assumed risk.

The Fed is guided, err mandated, to focus on stable prices and full employment. Stable inflation of prices is 0%. 2% or 5% is not stable.

Having a group of private company PhDs (the Fed is not government just a contractor to government) attempt to set the price of money at 2+% seems unlikely and not a free market. Maybe they can also set price of rice and internet service.

I read that a 'stable' 2% inflation rate will steal 60% of the purchasing power from a wage-earner over a 40 year career.

Sometimes inflation is not reflected in a price increase, but in the reduction of quality (e.g. longer waiting times).

There was a thread about it recently: https://news.ycombinator.com/item?id=29062736

This is addressed in the middle of the article. The Shadowstats guy couldn't give any concrete examples. Meanwhile I could say the reverse is also happening - an improvement in "quality" of cars (features and fuel efficiency), homes (square footage), medical treatments. Though I worked in healthcare and there were definitely a lot of unwarranted price hikes - if you paid out of pocket.

As for housing, if you adjust for price per square foot and the monthly cost of a mortgage (and not the purchase price - hardly anyone pays cash for housing), inflation for that category isn't as high as you'd think.

Housing has gone up significantly. Compare what you’d get buying a new build in 2000 to what you get in 2020. $100k for a solid well built home, now $500k for same sq ft, but much lower quality and corners cut at every possible point. I worked I. Construction for a while and my dad for over 30 years. Look up how many new builds have lawsuits for poor quality now vs 20 years ago. Sq ft isn’t a good comparison.

And so many people didn’t bother doing that math. Thanks for introducing me to this substack!

Add all those differences in price up and subtract from wage increases in the last 20 years. We’re paying way more now for things collectively. Inflation isn’t just a single increases of prices on items, it’s all increases compared to income level. It’s closer to 15% when you take the collective increases of everything compared to current income levels.

The thing that I think it's missing in this discussion is that while a single digit figure increase seems "small" and inconsequential, like 1 percentual point, it's in fact bad enough.

And since it's the dollar it ripples across the world.

So it's not 15 percent, but the actual figure of 6.2% is bad... really, really bad.

The “No, X isn’t that bad” is an actual rhetorical technique designed to cause you to become desensitized to X still being bad. It’s sort of like a “straw dog” technique, although its focus is in distracting you from considering the pressing issues still associated with X. “Well, they were wrong about this particular straw dog about X, so any other issues brought up regarding X are probably wrong too.” Or that’s what they hope your subconscious gets trained to believe.

6.2% is very significant if persistent. I’m too old to think it is really really bad…I lived through the 70s in the US when it was double-digit.

I was listening to NPR in the car today and they were talking about inflation. They always talk about inflation now. But it confuses me because isn’t inflation supposed to be the increase of price of everything due to something other than practical, on-the-ground market problems? Things cost more right now because of supply chain problems, low interest and high demand. When lumber became super expensive, that wasn’t inflation. If it was inflation, how could you explain that resin-based wood was more expensive than natural wood? You can’t, because the resin plants were hit hard by covid.

I think NPR insists on the inflation thing because they are liberals and recognizing the real cause of these high prices would mean admitting that the lockdowns were way more dangerous economically than they thought and that people against lockdowns actually had a point if a morbid one.

I think people need to drop politics and try to talk reality on the ground.

Don’t sell narratives, instead report what is experienced by the majority of the population, not some insulated pocket.

They are not the gov so they should be free to talk the pros and the cons of lockdowns and continually discuss them if on the ground realities shift. They are also not the fed and should be able to talk openly about what people are experiencing (inflation). It’s silly to claim it’s transitory when the policies being used are by their nature inflationary.

I hope the news has learnt their lesson, but that’s doubtful.

> it confuses me because isn’t inflation supposed to be the increase of price of everything due to something other than practical, on-the-ground market problems?

No, inflation can be caused by practical, on-the-ground market problems too.

> Inflation is the term used to describe a rise of average prices through the economy. It means that money is losing its value.

> The underlying cause is usually that too much money is available to purchase too few goods and services, or that demand in the economy is outpacing supply. In general, this situation occurs when an economy is so buoyant that there are widespread shortages of labour and materials. People can charge higher prices for the same goods or services.

> Inflation can also be caused by a rise in the prices of imported commodities, such as oil. However, this sort of inflation is usually transient, and less crucial than the structural inflation caused by an over-supply of money.

> But it confuses me because isn’t inflation supposed to be the increase of price of everything due to something other than practical, on-the-ground market problems?

No, inflation (without qualifiers) is the increase in the price of final (consumer) goods. (Not “everything”, and irrespective of cause.)

The real inflation rate is the s&p growth rate. Index investing is just keeping up with inflation. Most financial instruments, including CD and bonds are trash that is leaking value. There are other instruments…

I'm curious why you think this is true. The aggregate economic output of the US economy is no the inflation rate in any meaningful sense, or else 'economic growth' could be achieved simply by inflating your currency.

It’s a theory I heard from Michael Saylor interviews. The more I think about it, the more it makes sense. What if inflation was already very bad, far worse than reported, and our efficient markets were merely illustrating this to us. Until the invention of Bitcoin, the only place you could stash fiat in order not go poor slowly was Stonks. It still is stonks, mostly, but some crazy folks like myself have an alternative.

I’ve been watching fiat depreciate against the Bitcoin for a while now…

Nah. Here are some price changes from 1981 - 2021:

median home value: 68,900 - 269,039

growth: 390%

median income: 22,390 - 79,900

growth: 350%

gallon of gas: 1.19 - 3.41

growth: 280%

S&P 500: 121.71 - 4,688

growth: 3,752%

Yeah, most of the excess is taken up by the stonks. Most people only need one home, and enough gas to fill their 1-2 vehicles. It’s just a theory. We need more data. Next 10y of Bitcoin should show it.

Healthcare is a big expense. I’ve paid 1400 a month for a good family plan.

I recall my dad being upset at paying 500 dollars for an Er visit without insurance back in 90s.

Same visit would probably be 5,000 to 50,000 today.

Reply on news.ycombinator.com