Visualizing American inflation across eight categories
perthirtysix.com
perthirtysix.com
They regularly modify the list of items in the cart, meaning the data isn't reliable over time.
They also include caveats where they can modify the Scritsmier price differences. For example, they attention to adjust the new price to account for what they consider to be added value. Say a product is 15% more expensive one year after a new model is released. When calculated the CPI, they can decide that the new model added 10% more value or benefit to the user, meaning the price only rose by 5%.
I wish I could find the study now, but around 2013 someone compared the CPI listed price increase of magazines to the actual change in the price listed on the cover over something like 20 years. The true value change was around 130% but the CPI had adjusted for value 30%.
Most people seem to be feeling this now when they notice that process have risen much higher than the claimed 4 or 5%.
At some point, even the long-term index can't be constant.
Like, the differences in the 1991 basket to the 1992 basket are pretty small (please, someone, double check this). But the differences in the 1991 basket to the 2019 basket are larger, for example.
So it would seem to me to be a bit silly to have to update the prices of the 1991 basket all the way to today, especially when you're updating the 1992 basket as well, and every other year.
I'm not a CPI expert person, so if there is someone that really does understand these things in depth, please chime in!
A "normal TV" now is a smart (spit) TV which compromises privacy and viewing experience and durability - but which is sold massively cheaper than a plain TV as defined perhaps 6 years ago. You have to dig hard to find a plain TV and it's more expensive. Do you count "smart" as a positive hedonic feature? Or do you count the effort necessary to find a plain TV in the price increase of a plain TV? Do you compensate for much other price increases just because a "normal TV" is now much less expensive and (allegedly) more hedonic?
Part of the challenge is with how frequently they decide to change the basket of goods. If the basket was largely stable over time we would have a pretty good estimate simply by aggregating annual data, especially if they focus on staple consumables that don't change drastically over time.
They provide their raw data [1]. You can reconstruct the index however you want. There is an entire industry of consultants who create custom benchmarks for planners.
For personal purposes, your metropolitan area's CPI is a better metric to watch than the national number.
TVs dropped in price due to the benefits of adopting moores law. Look into a modern TV and you see a symphony of integration and cost reduction thanks to moores law. I'd imagine the same applies to anything else that jumped on the moores law bandwagon. We need to measure appliances that benefited from this vs appliances that didn't.
The BLS goes into excruciating detail about their methodology, which is not something often find scams doing.
The Consumer Price Index is just that, an index. It seeks to distill the complexities of the consumer economy into a single number, and to do so reliably over time. It's impossible to do this without a whole bunch of compromises and trade offs. It's trivial to rip apart any such methodology because of these trade offs - just find a trade off you don't agree with and argue it should be the opposite.
If someone attempted to make a t-shirt using the weighted dimensions of every American, the result would be a t-shirt size that would not fit any individual. But, over time, that t-shirt could be used to understand changes to the American physiology over time.
> For example, they attention to adjust the new price to account for what they consider to be added value.
They cover this in their FAQ [1]. But again, this is a trade off. If laundry detergent becomes more concentrated, thus can do 20% more loads for 10% more price, then how should that be handled? If $1000 Nike shoes become popular, does that mean that the price of shoes increased 10x even if cheaper alternatives are still the same price?
[1] https://www.bls.gov/cpi/quality-adjustment/questions-and-ans...
(And if it were an "independent" agency like statistics are in some countries, that would provide more shielding but not necessarily perfect either.)
Asking for specific evidence of a specific BLS personel filing a grievance or similar because of pressure is placing the bar way into the "blind" territory. This is not how influence works. I mean sometimes it is and we get to see it laundered in public, but that's not the common way. In the case of BLS it may be there, I haven't searched.
Oh hey, there is someone who got caught with his hand in the cookie jar: https://www.washingtonpost.com/archive/politics/1988/09/11/b...
As usual what would help is ever more work from the producers to justify their work. BLS comes short. They are not the only ones but still.
Except for e.g. the small print in an EULA, or the XXXX pages Congress spending bills. There is definitely a bureaucratic technique of 'obfuscate through sheer volume of irrelevant information'.
On top of my head:
* basic breakdown: grains, meat, veggies
* processed vs. unprocessed
* grocery sourced vs. eating out, largely fast food
* sourcing, binned by log distance travelled
* scenarios: Med diet? carnivore? vegetarian?
On reflection, the core objection is that there is a subjective hidden parameter: the relative weights of different components. See e.g. https://www.bls.gov/opub/hom/cpi/calculation.htm#item-replac... I'd rather use my own weights.
Yes [1][2].
[1] https://www.bls.gov/cpi/tables/
[2] https://www.bls.gov/cpi/tables/relative-importance/home.htm
Except it's not. It's how we calculate inflation, which in turns drives how we measure GDP growth. It's also how we measure productivity and purchasing power variation over time. This measure has a very big impact, including on our assessment of policies and the evolution of the economies of nations.
Off course there can be no absolute value for such a thing, but the problem is that economists have been obsessed with “real” prices and disregarding “nominal” values (you'd notice the irony of naming the arbitrarily constructed thing as “real”), and so almost every economic analysis includes CPI and now everything depends on it so its measurement become included everywhere indirectly. And it is in fact a big problem.
They actually do describe this "If the BLS data collector is forced to replace a short-sleeve cotton/poly shirt in the CPI sample with a long sleeve 100% cotton shirt..." but they provide no answer aside from [well the one on the shelf now is better].
So that the buyer of the "common" shoe, shirt or TV pays more.
It's easy to argue that it's possible to dig deep and find that "older" cheaper item but that doesn't change that the "basic basket" is now more expensive.
The second problem is one of perception - and perception really matters in this case. And CPI doesn't solve that problem.
While I do agree with many of the points you raised, for me those point to the uselessness of the CPI as a matric. If the dataset is so complex you can only boil it down so far before too much context is lost. The CPI is an attempt to create a single number of off the entire economy, a task that is impossible made only more clear by complaints over the obvious and egregious tradeoffs made.
Statistics can be useful, it can also be a pointless game of manipulating so much data that you can make it say whatever you want. I think you'd be hard pressed to find an average American that would feel like prices have only gone up by ~4-5% over the last few years.
Unless you're setting federal policy, it probably is useless to you. For personal forecasting, you're better off using the CPI calculated for your state or metropolitan area. (If you're procuring at a national scale, you're looking at a producer index.)
It may not be reliable over time, but it is reliable over shorter time periods. If the basket is not changed for a few years, then the month-by-month changes in CPI are generally judged as reliable, or as reliable as what is out there. It is when you try to look over a 10, 20, 30 year period where you begin to run into trouble.
Yes? Of course? They are based on spending surveys:
* https://en.wikipedia.org/wiki/Consumer_Expenditure_Survey
When people change their habits in life the CPI is changed to reflect what that life costs. Up here in Canada, the CPI is also adjusted from spending surveys:
* https://www.statcan.gc.ca/en/survey/household/3508
You can see the list of changes going back to 1913:
* https://www.statcan.gc.ca/en/statistical-programs/document/2...
Do you think coal and lard should be included, like they were in Canada pre-1956? Or do you think the CPI should try to model reality?
> […] meaning the data isn't reliable over time.
It is meaningful in that life now and life ten or twenty or more years ago was different in what people purchased. That should be reflected in measures that model consumer spending.
If people spend on item X less or no more, why would it be included in the index at the old weight? For any given period of time being measured, the basket of goods and their weights should reflect what people are actually doing. Why would you run a model that samples the wrong things?
This is one reason why (e.g.) StatCan went from updating their basket every 2-3 years, to annually in the last little while: spending habits shifted drastically in over the course of the pandemic.
* https://www.statcan.gc.ca/en/statistical-programs/document/2...
Substitution is a known source of (possible) error and there are attempts to take it into account:
> 9.22 The other potential source of error with respect to the basket weights is referred to as upper-level substitution bias. This bias arises because of the use of the Lowe formula, which is an asymmetrically weighted fixed-basket price index. Because the weights are obtained from a year that precedes the price reference period, the expenditures are not likely to be fully representative of consumer spending patterns in the price observation periods. This is because consumers tend to adjust their spending habits in response to changes in relative prices, buying more of the products whose prices have fallen or risen less rapidly, while reducing their purchases of products whose prices have increased the most. In other words, they substitute towards relatively cheaper products from relatively more expensive ones. The asymmetrically weighted fixed-basket formula of the CPI does not account for these types of changes in consumer spending until a basket update is performed.
> 9.23 Unlike the Lowe formula, there are five known symmetrically weighted price index formulaeNote which are theoretically free from upper level substitution bias. These index formulae use expenditures from both the price reference period 0 and the price observation period t and therefore account for product substitutions that consumers may make. In this regard they are representative of consumer spending for the periods in which price change is being calculated.
* https://www150.statcan.gc.ca/n1/pub/62-553-x/2023001/chap-9-...
Say ten years ago, hypothetically, everyone ate steak and wine every day for $100/week and today everyone can only afford to survive on ramen and tap water and it costs $100/week.
If you change the basket to say people today only want ramen, you will conclude that there has been 0% inflation in a decade. Everyone still spends $100/week on food, no change at all!
That does not seem like a useful measurement.
But on longer time scales it becomes a bit meaningless. Lifestyles were so different 50 years ago that very little is directly comparable beyond certain staple foods. People tend to interpret the CPI numbers based more on their preconceived notions of how things are going than on any objective reality.
Please show me an economy where the list of goods stay stagnant and don't constantly change.
Unless your CPI is comprised of raw commodities like Iron Ore and Salt and Copper - then you're not going to be able to keep a stagnant list of items.
If x% of consumer food spending was on milk in 1920 and now it's 1/10th x - it doesn't make sense to keep milk with the same weight as it did in 1920.
It's pretty hard to tell if people are drinking less milk now because they're poorer or because they just prefer almond milk (which is more expensive) instead.
So, please, find a better & more cost-effective way to measure inflation. If you do, the government will use it.
Contrary to popular belief, we don't live in the USSR - where our government provides us with blatantly crap data. We just have shill politicians that spin everything into a lie.
In which case it won’t be a Consumer Price Index at all, as those things in their raw forms (well, salt is close, I guess) aren’t exactly consumer goods.
Of course, we already have industry-specific Producer Price Indexes which cover the raw materials and other inputs used in those industries.
If you take steel as an input - you can make lower quality steel for a lower price.
Even something as seemingly mundane and simple as oil has a lot of variety.
And $1 in food is $1.84 today? I don't have an index to reference, but also hard to believe.
Yes inflation was higher in big cities.
But: would you rather buy say a car for $100k interest free or $10k at 10% interest?
Anecdotally, I can remember a burger at a restaurant was about $6 in 1999. Now average seems to be 15 to 20.
I would believe that everything is about 3x the price from 20 years ago. This chart seems to say the average is less than 2x which I don't agree with.
It feels like far fewer restaurants have lunch specials than in 2020, for instance, and a lot of cheap restaurants have either raised prices to the norm or closed. Bars and casinos having discounted or free food to get you to drink has gone out the window (even where legal). And looking back 20 years, it feels like far fewer restaurants have small and simple orders available.
For instance, you used to be able to go into a diner or other casual restaurant and get a hamburger or other sandwich with no fries or side. That’s harder to find now. So is cheap, unremarkable coffee and cheap breakfast items, like small pastries or two-egg plates.
Similarly, it’s harder to find a small car, a house or apartment without central air, a 15 inch TV (though TVs have gotten cheaper), etc.
The Big Mac Index shows the price of a big mac in 2000 at $2.24, and now at $5.58, so that would put $1 in 2000 at $2.49 in 2020 which feels a lot closer to the actual number...but still low because everything "around" the entree has also increased similarly, if not more.
But the chickens now live cage-free and (thanks to California) the pigs will now be able to turn around in their pens.
I think the big one is the people who produce inflation statistics struggle to capture increases when products change, particularly shrinkflation.
The ONS (Who produce the UK inflation statistics) specifically noted limitations in their methodology because when a particular product (whether that's a particular brand, or specific size) is discontinued, they replace it in their subsequent basket with a similar item for measuring inflation but don't measure the change in inflation from the change in product.
For example a 25p can of peas may be withdrawn from sale by the manufacturer, so the next month ONS would switch to checking the price of a 30p can of peas (the next cheapest can). The fact that people who were buying that can of peas now have to pay 5p more for peas is never captured in inflation.
MSRP of a 99 M3 = 46k; 2023 stating at $74300.
Outside of housing and gas I'm hard-pressed to think of anything that's more than double the cost. GPUs, I suppose, but that's a weird hobby transition + a lot more industrial uses.
That said, housing+gas == huge parts of people's day to day lives, obviously.
I tried to ask HN about this a day or so ago…
Civic is more interesting, since the 2023 base-model Civic has far more technology, far better safety features, automatic transmission, and is quite a big larger than the 2000 model. Wouldn’t be surprised if the 2000 base model Civic didn’t even have power windows. That being said, if all you want is basic transportation, then your choices are much more limited than they were in 2000.
OTOH, the prior 10+ years even when inflation wasn’t very high, 1% or so interest rates meant savers were falling farther and farther behind.
I ate a meal with a drink at Taco Bell for $2-3.
They require “hacking” and careful deal-hunting to get the kind of bargains that used to be available with ordinary specials and coupons and such.
You can still “win” against e.g. Taco Bell, but it’s much harder. Ordinary menu prices everywhere are ripoff-tier.
Taco Bell in particular has gone mad, I don't see how they can survive with current pricing. I used to go often, knowing it wasn't good quality but it was oh so cheap.
Today their prices are so high that I can go to a local taqueria and get a giant burrito with far better and fresher ingredients and friendlier service for less money than a few mystery meat tacos from Taco Bell.
So on the positive side, I now only frequent the local business with good quality food.
> Anecdotally, I can remember a burger at a restaurant was about $6 in 1999. Now average seems to be 15 to 20.
When you go to a restaurant, you're mostly buying labor.
It's not a good benchmark for food prices.
Wages have stagnated, but rent and energy has gone up. It's mostly the rent that you are paying for when you eat out.
Specifically in HCOL coastal cities, we've seen increases to minimum wage, adjustments to the "tipped minimum wage" laws that mean business needs to cover more of the wage, and finally.. labor shortages causing restaurants to pay over even those increased minimums.
It wasn't long ago NYC minimum wage was under $10/hr, with "tipped minimum" being $7/hr. Now you have some restaurants paying $20/hr to get staff.
I don’t think the original comment depended on this being a good benchmark for food prices. Paying more for labor is also part of inflation.
Inflation has been retconned (i.e “Burgers were always $15, what are you talking about?”) They don’t want you to notice as your wealth is slowly stolen through the loss of purchasing power.
Wages have gone up in real terms (how the fed measures inflation). Food, energy, & transport have slightly under-performed inflation.
i.e. there's no way to slice it - the average laborer can afford more food & labor now than in the past.
The linked site differs from Case Shiller - saying that housing has also under-performed inflation. I'm interested how they arrived at that.
Housing is the real problem - and the vast, vast majority of housing in the US is owned by individuals and mom-and-pop investors, not corporations & billionaires.
The idle rich cannot be blamed for our problems in housing - though they can be blamed for other things. On housing, we can only blame ourselves, voting aggressively to curtail development at every opportunity.
Energy is cheaper, but we need more of it with years of back to back escalating extremes for both heating and cooling. Moving somewhere that isn't an impact gets into the housing issue.
And then medical and education are out of control.
Edit: to clarify, I am not laying all this at the feet of the idle rich, nor do I think idleness or wealth are bad things. They are great things we should all strive for for ourselves and others. I lay it at the feet of all of us who have made bad decisions, but some are more responsible than others, and many of those that shaped the policies that lead to these issues are wealthy as a result.
Close to 2/3 ($3.95) when introduced in 2001.
The renamed 1/2-pound Original Thickburger is now $5.79, or 1.47× the 2001 price.
I think that the official inflation numbers given are low to the point of absurdity. Time to dust off criticisms of the CPI... Most likely, no doubt, there's some political deflation of the numbers.
So they have a category called "Housing" which presumably does not include the price of a home. Very informative and helpful infographic.
If you buy a house for far more than the value of rent, you are making a speculative investment.
Rent is half my mortgage for an equivalent house. It wouldn't be realistic to call my mortgage the cost of shelter.
As someone who is looking to start a family, renting vs owning is not simply a financial question, they are totally different goods which are not interchangeable
If someone wants to talk about the cost of buying and homeownership rates, there is tons of data on that to point at.
Seems a bit skewed to me.
CPI is structurally biased to report lower inflation.
Yes? Of course? Up here in Canada, the CPI is adjusted from spending surveys:
* https://www.statcan.gc.ca/en/survey/household/3508
When people change their habits in life the CPI is changed to reflect what that life costs. You can see the list of changes going back to 1913:
* https://www.statcan.gc.ca/en/statistical-programs/document/2...
Do you think coal and lard should be included, like they were pre-1956? Or do you think the CPI should try to model reality?
> CPI is structurally biased to report lower inflation.
Quite the opposite. In the 1990s the Boskin Commission found that CPI was too high:
> The Boskin Commission, formally called the "Advisory Commission to Study the Consumer Price Index", was appointed by the United States Senate in 1995 to study possible bias in the computation of the Consumer Price Index (CPI), which is used to measure inflation in the United States. Its final report, titled "Toward A More Accurate Measure Of The Cost Of Living" and issued on December 4, 1996, concluded that the CPI overstated inflation by about 1.1 percentage points per year in 1996 and about 1.3 percentage points prior to 1996.
* https://en.wikipedia.org/wiki/Boskin_Commission
* https://www.ssa.gov/history/reports/boskinrpt.html
* https://www.stlouisfed.org/publications/regional-economist/j...
So if people can elude inflation of certain goods by buying differents and if that happens, inflation exists but doesn't actually impact quality of life. That seems to be the theory and foundation of the calculation logic.
The problem is that it's not necessarily true. If people completely stop buying product A (which's price increased 100x) and switch to product B (with the same price as before) then by the above calculation there is no inflation at all. However it could be that B is actually an inferior solution to their problem and while it works, they would prefer A over B when they cost the same.
So for the above calculation to be meaningful, the loss of quality-of-life would have to be measured in the case where one product is replaced by another one. And that is of course extremely difficult to do.
Therefore I would say that the above calcuation generally underestimates inflation.
It would probably be more honest to project inflation by defining a static consumer's basket and following it's price into the future. When done so, it will overestimate inflation the more time passes. So it can be combined with the method above. And the real inflation is somewhere in between.
If people completely stop buying product A and switch to product B then the model should do that as well because the model should try to match reality.
The CPI is about measuring prices of what consumers buy: the P and C in CPI.
> It would probably be more honest to project inflation by defining a static consumer's basket and following it's price into the future.
But that is not the purpose of the Consumer Price Index. There are other statistics available that may be useful:
* https://en.wikipedia.org/wiki/Personal_consumption_expenditu...
Or you could go out and measure the prices of these things yourself, as there's source code floating around that was used in academic research:
* https://thebillionpricesproject.com
* https://en.wikipedia.org/wiki/MIT_Billion_Prices_project
The CPI was setup for a particular purpose and it is good at that purpose. If you want to measure something else don't try to shoehorn it in, setup a metric for what you to measure rather rather than wreck what works.
Yeah, but it doesn't and it cannot. Because it's hard to measure if people reallt "switch" and if so, why and what it means to them.
Its often convenient for government to conflate the two; cost-of-living is a very flexible concept and so there are lots of way to get an answer you like, but they are distinct concepts.
Surely you can understand why a changing basket of goods makes for deceptive year-to-year comparisons.
If you print 10% of all the dollars in existence, that's 10% inflation.
Modern economists play around with the definition for political reasons, but classical economics were quite clear on what inflation is.
Like everything else in a market, a dollar has a value. Like everything else in a market, that value changes based on supply and demand factors. An increase to the money supply will decrease the value of a dollar, so that's still correct. But you can't just ignore the demand side. For example, if the population increases, then that creates more demand for dollars, driving the price up; in such an environment, you can experience deflation even if you increase the money supply, if that increase to the money supply isn't enough to offset the increased demand from population growth. Conversely, if the population were to decrease, that would result in inflation even if the money supply was static. And population isn't the only factor driving demand, of course. It's more than just the money supply.
Other changes in the economy may occur that would effect price levels of various goods, prices change all the time, but one thing is certain those dollars are 10% less valuable than if you hadn't printed any.
You can claim your growth in the economy balanced it out, but dollar holders were entitled to deflation in that case but instead got higher prices. It's still a tax even if prices don't go up, beacuse they could've went down, that's what happens in competitive industrialized economies, prices fall to slightly above the cost of production and then the cost of production starts falling.
Prices don't change immediately when the money is printed, prices begin to change when the money actually enters the market and starts bidding up prices.
This means that if you print money and add it to bank reserves or put it in a vault, that would probably have less of an effect on prices than if you threw wads of cash out of helicopters into crowds who would immediately spend it.
That is a symptom of inflation, it isn't inflation itself. Playing games with timing and guessing how much the economy grew only really serves people who want to print more money as opposed to raising taxes for political reasons.
If your wages don't keep up with monetary growth but keep with CPI you'll see your standard of living decrease. Contrast the home ownership rates of your parents generation to yours to see this in action. On the other hand if your wages grew with the money supply you'd be richer than your parents due to the fact it got much cheaper to produce many of the goods you buy.
Tell that to Japan which has an increase in money supply but bouts of decreasing prices (deflation):
* https://fred.stlouisfed.org/graph/?g=PA7P
Just having a pile of money does not mean much:
> But also – why do so many people insist that inflation is an increase in the money supply? This makes zero sense. Here’s why – our economy is mostly a credit based economy. So, if I take out a loan for $100,000 then the money supply has technically increased by $100,000. But what if I don’t actually tap that loan? What if I borrow the money because, for instance, house prices just went up 25% and I want to have some cash around for emergencies? This doesn’t tell us anything about prices, living standards or really anything. But this is what so much of the money supply represents – money that has been issued and is just sitting around unused. Why is this useful? It’s like calculating your weight changes by counting how much food you have in your refrigerator. No. That’s potential calories consumed and potential weight gain. The amount of food in your fridge tells you little about your future weight changes just like the amount of money in the economy tells us little about the actual price changes in the economy.
* https://www.pragcap.com/three-things-i-think-i-think-i-see-d...
Pre-pandemic people were complaining about inflation rate in the US being too low, even with a rising money supply:
* https://fred.stlouisfed.org/series/M2SL
Money hasn't done much in the US for the last few decades:
Maybe the person you're replying to is using the wrong terminology.
* https://www.statcan.gc.ca/en/survey/household/3508
When people change their habits in life the CPI is changed to reflect what that life costs. You can see the list of changes going back to 1913:
* https://www.statcan.gc.ca/en/statistical-programs/document/2...
Do you think coal and lard should be included, like they were pre-1956? Or do you think the CPI should try to model reality?
Here's the current list of products that StatCan used for Canada's CPI as of August 2022:
* https://www.statcan.gc.ca/en/statistical-programs/document/2...
Reality is messy, and you cannot take all of it into account, and so you create models approximations (cf. [spherical cow](https://en.wikipedia.org/wiki/Spherical_cow)). But in the words of [Alfred Korzybski](https://en.wikipedia.org/wiki/Map–territory_relation):
* [The map is not the territory.](https://en.wikipedia.org/wiki/Map–territory_relation)
* https://fs.blog/map-and-territory/
Or those of statistician George Box:
* [All models are wrong but some are useful.](https://en.wikipedia.org/wiki/All_models_are_wrong)
It is remarkably challenging to follow what that index is measuring in real terms and whether it is measuring it accurately. It is hard to follow what biases the as-implemented sampling process might be subject to, there are several layers of weighting where it is hard to see how they were come up with and then 25% of the index is Owners' equivalent rent.
So the question is not just can people level specific complaints, but also where are we supposed to draw confidence from that this is a useful number? "Men with suits spent a lot of time coming up with it" isn't a satisfying answer. I don't want to use it for discounting my investments, if my money isn't keeping up with the M2 monetary aggregate I'm shuffling my portfolio around (even gold pretends to have real returns if you discount it using CPI, which is ridiculous). And it isn't especially useful for my personal life because my weightings are not the weightings in this table. And if wages go up based on the CPI... that just reflects workers getting screwed. We've all seen what productivity and profit trends are doing.
It looks like a baffle-them-with-bullshit con to distract from government spending and money printing by pretending that because this particular index doesn't go up everything is fine. The politicians have made the process of figuring out who is paying for the spending complicated enough that it is hard to do. That isn't a strategy that people should accept. Just because the logic is too complicated to understand doesn't mean that they've built a perpetual motion machine. Someone is losing out. This involved index is more of a distraction from the monetary aggregates at this point.
$1 from 1999 would be worth a lot more for buying a house, since house prices have gone up insane.
$1 from 1999 would be worth much less for technology: a modern-day phone would be essentially priceless, but if you only care about specs, it could be replicated in a supercomputer, albeit for >$100 million (https://news.ycombinator.com/item?id=21977330)
Even within a category it depends: certain food items (junk food) seem to have gone up in price considerably more than others.
Not it doesn't.
This is the primary difference between liquid and non-liquid assets.
I think the trick is to build your personal consumption basket for essential unchanging goods and use that for comparison. Certain things like the types of food I eat have been reasonably consistent over the past 20 years. So something like "how many calories & grams of protein could I buy in 2003 vs 2023", and then compare that my hypothetical wage growth over that timeframe. Or wow much is a quart of oil? I needed to do oil changes 20 years ago, and still do my own today, etc...
This is expected given technology is advancing but pricing hasn't changed much if you factor in relative costs to relative performance / outcomes.
For example in 1999-2000 you could have gotten a really solid machine capable of playing Quake 3 (the latest and greatest FPS game of that time) getting a rock solid 125 fps on a CRT monitor capable of doing 120hz for around $650-700.
Realistically a solid machine nowadays with a mid-grade GPU is likely going to run you $1,000 to $1,200 and that could easily be more if you wanted a higher end GPU.
All in all you're talking about a little under double the price which is roughly what an inflation calculator says (1.85x) for the same relative outcome.
In 1999, a CRT with a 20" viewable area cost $999 [1] with reviewers saying "The price point on this monitor is fantastic"
Today? $70 gets you a 22" viewable area [2]
[1] https://www.anandtech.com/show/421 [2] https://www.amazon.com/PHILIPS-Computer-Monitors-Replacement...
Not all monitors were that expensive back then.
I got a 21" 1600x1200 NEC for $150 around that time (1999-2001) that could do 120hz at the resolution I played Quake 3 at. That was shipped too even though it weighed almost more than me.
The funny thing is that $70 22" monitor you linked is 1080p which has been around for almost 20 years. I hope it's dirt cheap by now. A 1080p LCD used to be really expensive when they came out too, and most LCDs were bad back then where "good" could be categorized as having a high refresh rate, good color range and fast response times / low input latency.
The actual TFA is specifically about this very point!
Which should be changed, under the constraint that they must sum to 100?
Childcare is the average amount spent by all households, not only by the households which have childcare expenses. I spent essentially $0 on childcare now that my kids are old enough to stay home alone if my spouse and I go out. I expect to continue to spend $0 for the next 3-4 decades.
> Housing is underweighted in rents and overweighted in owner equivalent rent.
About 2/3 of Americans "own" their home. The owner-equivalent rent also happens to be about 2/3 the sum of (owner equivalent rent plus rent). That is not an accident, but rather is causally linked.
Also though you may not notice it but your taxes are probably going up every year to cover additional public child care costs even if you aren’t paying directly.
Medical is probably one of the biggest mismatch categories though
Two questions:
1. What does that even mean?
2. For what use?
> They should also add real estate and other assets to the inflation calculation.
There is plenty of tracking of asset prices. Why should it be part of generic (i.e., consumer) inflation, other than to break all the processes that depend on that measuring consumer prices as distinct from producer prices, asset prices, etc.?
They are based on spending surveys:
* https://en.wikipedia.org/wiki/Consumer_Expenditure_Survey
So the average CPI is what an average consumer spends spread nationally. You may personally have different weightings, and so what you 'feel' inflation is like may be different than the average.
No one. CPI is a national average for the average person on an average basket of goods. It is not meant to reflect what one individual does.
In Canada, StatCan has a tool where you can enter your own personal weightings for various categories so you can get your personal CPI:
* https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2020015...
I wish people would stop conflating the model with reality: the map is not the territory.
[0]:https://smartasset.com/data-studies/where-home-prices-fell-2...
Plus it's shorter than saying "skyrocketed to an irrational extent, similar to what happened in the crypto market craze" and hence more expressive. Now, you might not agree that it quite did that to the same level as dogecoin, but that's a different matter than whether or not "mooned" is a good choice of words here. Personally I think hyperbole is useful and fun sometimes.
It is shocking to see 30, 40k homes in perfectly safe areas, albeit in what feels like a ghost town. These tend to be small and run down but they’d still be 200k+ in a large metro and who knows how much somewhere like SF or NYC.
Case-Shiller is up ~220%
Let's take a deep dive into how CPI housing is computed. You would think it could just be "track the price of every home sale in the US", or "track the price of every new rental". Ah, my naive friend, the US Bureau of Labor Statistics lives in the year 1900 as if data, electricity, compute, and statistics don't exist. Anyway, those numbers would be too scary and too objective.
First, the real kicker, CPI housing doesn't measure the cost of a house! At all. Their rationale is that the a house is an investment. So it has no relationship to the Case-Shiller index at all.
What do you measure if you don't measure the cost of housing? Well, you're left measuring rents, but that's not satisfying when a lot of people buy a home. So.. why don't we measure the imaginary rent that someone thinks that their house that they bought 30 years ago might be able to fetch.
3/4ths of the housing index is computed from a single quantity called the "Owners’ equivalent rent of residences". They ask people in a survey: “If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?”
Let that sink in for a moment. People who aren't renting their home. Who aren't real estate agents. Who have no idea what the cost to rent their home is. Who are homeowners and haven't rented a home in decades probably. "Bob, what do you think this would rent for?" "Ugh, $1400/month" Great! Let's base our entire understanding of the economy on the random answers of clueless people.
But, remember, the Bureau of Labor Statistics needs to do everything like we're in the pre-electricity era cruising around on the latest model of horse. So they can't ask too many people. Only a few thousand people, and they keep asking the same people over and over again. Seriously, they ask the same few thousand people every 6 months what their rent is and what their imaginary rent is. They even admit this doesn't change much. And they admit this means all the data they get is garbage, it's too skewed by the particular properties of those few thousand people they randomly selected once.
They could just ask 100,000 people or at least pick a different group of a few thousand every time? And then everything averages out eventually.
Doing that with your horse and buggy is way too hard. Instead they adjust the junk responses they get for the type of housing, quality, etc. With a whole bunch of magic numbers that come from yet another survey of clueless people, the Department of Energy’s Residential Energy Consumption Survey, which was last run in 2020 (although I think housing CPI is computed with the 2015 run) and asked about 5000 households a bunch of questions + got some billing info from their utilities.
They compute monthly CPI with an amazing formula that I think is the only use of a 6th degree square root I've ever seen in statistics (and I have CS/math degrees and do ML research; it's probably legit, but I'm not working backwards to figure out how they derived this).
Oh, we're done yet! Housing also gets older all the time, we need to correct for this. That's a whole pdf. That I've never read. And I'm not sacrificing my sanity for HN. https://www.bls.gov/cpi/quality-adjustment/updating-housing-... But it has a model from January 1997 with 110 degrees of freedom. That's not confidence inspiring to say the least.
Ok, so we ask clueless people to give us meaningless numbers that we then adjust based on complex largely meaningless formulas to compute an imaginary rent that doesn't exist instead of just looking at the actual cost of housing. How could this get worse? With the magic of "imputation"! A beautiful word from statistics that means "Oh, we didn't collect enough data and we have no idea what the actual number should be, so we're just going to make a number up and pretend like it's a data point we gathered based on some idea of what we think it ought to have been". Because the best data is the data you make up according to your gut.
Feel free to read the horror show for yourself https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...
No one with two neurons to rub together would ever adopt this methodology in the modern world.
Of course none of these numbers match any of the reality that anyone experiences. Their documentation on how anything is computed reads like standup comedy.
It's perfectly satisfactory when the accepted rationale for many, many home purchases is as an investment vehicle, rather than as just as home (which is what rent covers).
> No one with two neurons to rub together would ever adopt this methodology in the modern world.
You're seriously making the claim that the BLS has nobody with your intelligence in a powerful position?
It has nothing to do with intelligence. And of course statisticians at BLS know that this is trash.
Any economics or statistics student could do be a better job. And certainly, no statistician worth their salt would compute anything with the methodology that BLS uses. I cannot imagine a paper being published based on this methodology. It's not that reviewers would reject it, it's that no one in a position to submit such a paper would ever do so because of the shame associated with doing such shoddy work. I'm not sure I'm doing a good job of explaining how incredibly subpar this is.
BLS has other priorities. Changing the methodology isn't easy at all. All of your old numbers don't make any sense anymore. You can't go back and recompute them. And people would fight over what methodology to use.
Everything they do follows this insane totally outdated approach, it would be really confusing to have parts that are modern and parts that are ancient; perhaps even more confusing than the current mess.
There are no incentives to change anything. Who will make them change something? Congress? They have a worksheet, they run it, they get numbers, garbage in/garbage out, people use the numbers regardless.
Hardly anyone knows how these numbers are computed. Hardly anyone cares that they are unscientific trash. Pretty much everyone stops at the title associated with the number.
So every bond trader, Fed observer, academic economist, investment bank economist, pension fund, union, etc, are all aware of this bad methodology in the BLS CPI, and are saying nothing? All these people with heaps of money on the line in one of the most looked-at statistics published are… ignoring the problem?
> Hardly anyone knows how these numbers are computed. Hardly anyone cares that they are unscientific trash. Pretty much everyone stops at the title associated with the number.
Really? Because MIT's Billion Prices Project (BPP; an index of internet prices, scraped daily) found the CPI and the BPP are very tightly intertwined:
No, they make money off the problem by computing better numbers internally. And there are countless papers out there criticizing the BLS for their shoddy methodology.
> Really? Because MIT's Billion Prices Project (BPP; an index of internet prices, scraped daily) found the CPI and the BPP are very tightly intertwined:
Funny someone else brought that up. That's "true" as long as you don't look at any of the details and don't read their publications.
They don't measure housing for one thing, and that's what we were talking about here. Only goods. They even show that services aren't well estimated at all. And even some categories of goods aren't. And they unfortunately ran at a time of historically low inflation. It's much easier to predict a number that is very low and has very small range.
So.. the MIT project is about the wrong category of goods. Computed in a totally different way by the BLS. Nothing in my post applies to it. And they explicitly show that they don't agree with CPI on categories like it (simply because their project isn't relevant to them).
* https://www.bls.gov/opub/mlr/1982/06/art2full.pdf
There is no internationally agreed upon method for housing/shelter, with pros and cons for each:
> International statistical agencies have unanimously adopted the net acquisition approach for durables, but there is no consensus about the best approach to the treatment of OA in the CPI16 (Table 1). Rental equivalence is the most popular approach among countries belonging to the Organisation for Economic Co- operation and Development.17 Johnson’s (2015) recent review of the U.K. CPI proposes using CPIH, which includes the costs of OA and is based on a rental- equivalence approach, as the U.K.’s main measure of inflation. Several countries in the European Union have refrained from incorporating OA into their CPI, although Eurostat is currently conducting a pilot study for the euro area based on the net acquisition approach. Australia and New Zealand use a net acquisition approach, while Sweden and Finland—like Canada—are using a partial user-cost approach. No country has adopted a full-fledged user-cost approach.
* https://www.bankofcanada.ca/wp-content/uploads/2015/11/boc-r...
In the Canadian CPI paper there is some explanation towards the complexities of shelter / owner accommodation:
* https://www150.statcan.gc.ca/n1/pub/62-553-x/2019001/chap-10...
* https://www150.statcan.gc.ca/n1/pub/62f0014m/62f0014m2017001...
People also often confuse the price of the asset (e.g., land) with the price of the home/structure.
> The [US] BLS views housing as a mostly “investment” item as opposed to a consumption item. So, for instance, when you consume a hot dog and have to replace it then the cost of replacement is a direct reflection on your well-being. A $1 hot dog that costs $2 one year later is a material change in living standards, all else equal, since the hot dog is an asset that you literally consume. A house is much more complex. [...]
> Of course, anyone who owns a house knows that it’s not that simple. You do basically consume your house over time. For instance, my home has appreciated substantially since I purchased it just 5 years ago and underwent a hellish remodel. At that time the cost of replacement was roughly $300 per square foot. But in the ensuing years the cost of replacement has increased to $400 per square foot. As my physical home falls apart over the years I will need to replace it. But the key point is that, as I replace these components the housing market is likely to revalue the total home value to account for this investment. So even though I am consuming my house over time I am very likely to recoup those costs.
* https://www.pragcap.com/should-house-prices-be-in-the-cpi/
It is a common mistake, for example with this story entitled "This tiny Toronto house is now listed for $1 million":
* https://www.blogto.com/real-estate-toronto/2020/07/tiny-toro...
The house (home) is not being sold for one million dollars. The land is being sold for $950K, and the buyer is getting $50K worth of structure.
Similarly if you are a home owner your home/structure depreciates over time so you have to do maintenance on it over time. And because of various shortages (e.g., lumber, plumbing fixtures) the cost of upkeep has gone up. Upkeep is a part of the CPI: the "C" in CPI stands for consumer.
And why the component is called Shelter and not Housing, at least in Canada:
* https://www150.statcan.gc.ca/n1/pub/62f0014m/62f0014m2017001...
It includes:
* Rent, tenants' insurance, tenants' maitenance
* Mortgage interest cost
* Property taxes
* Homeowners' insurance, maintenance, etc.
* Utilities: water, power, natgas
The consumable portions are housing/shelter are taken into account.
> There is no internationally agreed upon method for housing/shelter
Agreed. But, I think that we can also agree that basing most of the number on asking people what the imaginary rent of their home might be is totally worthless.
> In the Canadian CPI paper there is some explanation towards the complexities of shelter / owner accommodation:
And you'll note that Canada doesn't use Owners' Equivalent Rent, never mind making it the majority of the index. Instead it actually computes what it would likely cost to rent that dwelling: mortgage, replacement cost, property taxes, maintenance, and other costs. That's a far more rational way of doing it.
* https://old.reddit.com/r/PersonalFinanceCanada/comments/z14p...
And plenty of folks in Canada think like you do: that the official way Is Wrong and Some Other way should be used—often pointing to the US as the way it should be done. And yet here is someone in the US saying the Canadian way should be the way. ¯\_(ツ)_/¯
Assuming the inflation of those items differ significantly from a broader basket of goods, there's no way to have a single measure that reasonably represents price increases for the two groups.
* https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...
This is because some portion of the population are renters and some are owners, so they both need to be reflected.
* https://www.bls.gov/opub/mlr/1982/06/art2full.pdf
Further, there is no internationally agreed upon method for housing/shelter, with pros and cons for each:
> International statistical agencies have unanimously adopted the net acquisition approach for durables, but there is no consensus about the best approach to the treatment of OA in the CPI16 (Table 1). Rental equivalence is the most popular approach among countries belonging to the Organisation for Economic Co- operation and Development.17 Johnson’s (2015) recent review of the U.K. CPI proposes using CPIH, which includes the costs of OA and is based on a rental- equivalence approach, as the U.K.’s main measure of inflation. Several countries in the European Union have refrained from incorporating OA into their CPI, although Eurostat is currently conducting a pilot study for the euro area based on the net acquisition approach. Australia and New Zealand use a net acquisition approach, while Sweden and Finland—like Canada—are using a partial user-cost approach. No country has adopted a full-fledged user-cost approach.
* https://www.bankofcanada.ca/wp-content/uploads/2015/11/boc-r...
Seems like any particular system has pros and cons. Someplace else in this thread someone mentioned that Canada's system for Shelter is better, but even StatCan recognizes limitations of what they use:
* https://old.reddit.com/r/PersonalFinanceCanada/comments/z14p...
And plenty of folks in Canada think like you do: that the official way Is Wrong and Some Other way should be used—often pointing to the US as the way it should be done. And yet elsewhere in the thread someone in the US saying the Canadian way should be the way. ¯\_(ツ)_/¯
I agree that what the BLS is doing is not predictive. Because that's not the point of the CPI: it's measuring what happened in the past.
That's why the numbers that were released on October 12, 2023 were for what happened in September 2023, not November 2023.
> Sometimes I feel like people read some econ 101 and the admittedly intuitive idea that inflation is “always and everywhere a monetary phenomenon”, but didn’t stop to think that it might be a lot more complex than that.
This is the case with almost every armchair economics comment. The same thing happens with the complexity of affordable housing: “It’s all just supply and demand! Econ 101!”
You should start your One True CPI and license it; you'd be rich.
I took a few seconds to understand why the 6th riot was used; it's clearly correct and if you took a moment to understand instead of discounting it, youd learn. Hint: it's 6 things multiplied together - ever hear of geometric means? Similarly I looked at the paper you discounted because the degrees of freedom somehow offended you. It too is a good model. And, as credentials go, I have a PhD and decades of modeling experience. Even so, I'd expect someone with your claimed expertise to be able to understand these.
If there were some vastly better method, traders could make money on the difference. They look at it, and cannot. There's lots of papers and research on this.
Multiple other actors,like the MIT Billion Prices project started, and others followed, measure it, and get equivalent numbers.
So, if you're so sure the BLS is stupid and wrong, there should be some group getting it right. Care to find them?
Another simple experiment you can do (and I've done) is to take a reasonable set of monthly purchases, weight costs like that, go back 40 - 50 years, and pull up ads for those goods. Pop it all in excel, and compute compound inflation over that time. Do it honestly. Then check BLS over that time. TADA! Guess what? It's pretty good. I've even gotten several friends to do this when they claim all this nonsense. They've all been surprised how well it works.
So simply check it. It's easy.
You're behaving like I am alone in criticizing the BLS for this insane methodology. There are countless papers out there about how crazy the CPI is, and specifically CPI Housing.
> You should start your One True CPI and license it; you'd be rich.
Predicting CPI and corrections to it is an established enterprise. As is predicting better inflation numbers.
> Multiple other actors,like the MIT Billion Prices project started, and others followed, measure it, and get equivalent numbers.
We're talking about housing yet you're quoting a project that specifically excludes all housing? How is this relevant? Why do I feel like you haven't read their paper?
They very explicitly show that their benchmark doesn't work outside of goods. Like they look at medical costs and show that they aren't predicted well. Sadly they don't look at housing. The project also ran at a time of very low inflation in the US so there's not much to see. It's easy to have agreement with CPI when the numbers are all fairly low, not much room to disagree at all. We can also argue how much agreement their numbers actually have with CPI.
> I took a few seconds to understand why the 6th riot was used; it's clearly correct and if you took a moment to understand instead of discounting it, youd learn. Hint: it's 6 things multiplied together - ever hear of geometric means?
Ok, I was having fun at that point. But, let's be serious. It's still stupid. And I stand by my statement, never in my life would I take a geometric mean here.
You're telling me that you would do this today? You wouldn't say set up an actual Bayesian model and compute its posterior to estimate all of these quantities? You would compute all of these indices and corrections separately? All of these little errors add up, you have no idea what's going on with them. You wouldn't want to get some confidence interval out? You wouldn't want to be able to see how variations in your assumptions can change the results? You would impute the missing numbers with whatever felt good? Come on. This isn't acceptable methodology in any field that I've ever been a part of.
> Similarly I looked at the paper you discounted because the degrees of freedom somehow offended you. It too is a good model. And, as credentials go, I have a PhD and decades of modeling experience. Even so, I'd expect someone with your claimed expertise to be able to understand these.
You're telling me that the best you can think of model wise is a linear country-wide model with an R^2 of 0.5? After decades of modeling experience that's all you've got? And that one R^2 is enough to make you believe this is a good model? That's the standard of evidence you use before you commit trillions of dollars to a model? Give me a break! This is the initial analysis an undergrad would make in a mediocre course project they didn't put much effort into. Even our undergrad courses have far higher standards than that paper.
That's just two years. Not 24.
By this I mean, corporate profits have increased but are still most often (never mind Apple) a small fraction of price in the retail world.
Ha! Yeah, I've seen some 11oz(!!!) bags of coffee recently.
Sample of one. The house I once lived in sold for $193K in 1999, I sold it for $300K in 2007 (before the housing crash), it's Zillow estimate fell to $230K in 2010. Today the Zillow estimate is $454K. So that is 2.3 the cost.
Food is definitely way more expensive. Raw foods like Beef, eggs, flour, sugar etc. all has gone up 60-80% in the last two years.
So I definitely believe you when you say it is hard to believe.
Case-Shiller is index of homes-as-an-asset buy prices, the housing component of CPI is housing-as-a-consumed-service rent prices. 1999 was pretty near historical lows for the buy:rent price ratio, today is just off the all-time high, so, yes, now:1999 for buying a home as an asset is very different than now:1999 for consuming housing as a service.
Up until 1999/2000, a Burger King Whopper was $1.
Today ~$8
Food prices have basically doubled in a couple of years. Prices for McDonald's have gone from about $5 for a breakfast meal combo to almost $9. I can't go out for dinner in the Bay Area for 2 adults and 2 kids for less than $100.
In 9 years up to 2021, my house price almost tripled. That is inflation that no one talks about. My new house price that I bought in 2021 is down 15%. This is deflation that no one talks about... yet.
The government skews numbers because they allow consumers to "trade down" to lower quality, cheaper products so that inflation doesn't look like it's going up. This doesn't capture the fact that the product is much, much lower quality. If you compare a real Big Mac to today's Big Mac, it's a pale comparison. Same goes for just about everything else. What use to be "regular" is now considered premium, and that inflation doesn't get captured over the decades.
The phone in your pocket, your laptop, your car have all gone up in quality/safety/speed but that also isn’t counted.
The Bay Area is not America. In Philadelphia, for example, entrees at a nice restaurant downtown are about $15, while I fed three adults at a bar in the suburbs for $40.
The government isn't lying to you with CPI, you just live in an outlier city.
The other example you were quoted was from Philadelphia which is a (relatively) cheap east coast city with fairly stable house prices. Nobody is denying your experience, they are pointing out that your experiences come from an "outlier" location.
My take is that nothing less than a dollar bill is worth much anymore. Part of this is could be the issue of cash vs card, but my uneven sample says that ratio is not really changing.
And what can you buy for $0.25? Nothing. $0.50? Nothing. Not a cheap drink, not a cup of coffee. For a dollar? Still nothing.
https://www.today.com/food/news/nycs-2-bros-dollar-pizza-slices-rcna77180
https://citylimits.org/2022/07/28/how-much-does-a-bagel-cost-in-your-nyc-neighborhood/https://www.seriouseats.com/where-to-get-99-cent-slices-2-br...
I believe all McDonald’s have 99 cent coffee but I’m not sure.
And, at this point, cash use is in sufficient decline that I can't imagine any serious effort to make changes.
Walk into any convenience store and try to pay with a fifty dollar bill, you're lucky if they even take bills that large, they won't want to make change, they'll pull out a highlighter to make sure it's real. But it's only worth about twenty bucks to anyone who was around for Nirvana.
I agree with you however I think this shows how poorly people understand inflation.
Inflation from 1993 -> 2023 is 113%
Slipping a waiter an extra $20 has 113% less meaning in 2023 than it did in 1993. You should be slipping a $40 lol
Guess used to be if a beer was 2, and you tip a buck, it is 50% Now a Beer is 6, and you tip a buck, it is ~16%.
But really, 50% was way too much to begin with, it was just convenient accounting when hammered.
I remember 20 years ago, the general rule was to tip at least 10%, then at some point it changed to 20%. I abide by that. If it was great service, I tip 20%, if it wasn’t very good, I tip 10%.
That $20 has 53% (1 - (1/2.13)) less meaning in 2023 than in 1993.
If it had 113% less meaning, the 2023 meaning/value would be negative and the waiter should rationally turn it down.
Imagine today, paying $50 for any random album you wanted to own.
Meanwhile at Best Buy (and other places I'm sure, but I worked at Best Buy) they were $9-12
It is a sign of the madness of monetary policy that raw changes in price are an unsuitable for measuring whether the value of something has gone up or down. Cutting a bit off the yardstick each year doesn't help. They just make it harder to figure out what is happening in the economy.
Imagine you need 200 of bricks to fix a wall. You may say that modern brick is 50% better, more insulating whatever. And now your inlation number is 10% instesd of 60%
But I still need the same number of bricks to fill in the hole on the wall. And I have to pay 60% more for it, not 10%. So when it comes to cost of living and surviving in the world, this argument is pure fantasy.
Can you achieve the same level of insulation for less, by using traditional insulating materials and techniques instead of insulating bricks?
Does the law mandate that your bricks have a certain R-Value?
How much heating and cooling is required in the climate where the building is located?
As usual there is no simple answer.
Bricks are OK as an analogy, but very poor as an example: as far as I'm aware modern bricks are no more insulating than old bricks, and neither are any good at the job. If there is a modern and insulating brick, then I don't think it's really caught on very much yet.
So the cost of bricks went up by X, and maybe the cost of electricity also went up by Y, and the labor costs are also higher by Z, but adding them all up, my costs are not up by X + Y + Z, but something less than that. Should that be part of CPI? Is that part of CPI? Is that part of something else? Very interesting in knowing an official economist take on this.
No one is stopping you from buying the $20 phone with the 2007-era features. You will still be able to text and call just fine. You just want the features of the smart phone. That's why I think it's fair to say that the cost of mobile phones hasn't gone up.
This is the case across many categories, the big exception being cars - automakers simply refuse to offer basic/inexpensive cars in the North American market for whatever reason.
I remember that they cost $24 in 2008.
So your CPI might say internet is cheaper, but that is a fantasy, because in real life I pay 2x as much for a 50 mb connection.
Likewise I cannot use a 20 year old phone - those frequencies have been shut down.
There are several sitations where I was legally required to have a smartphone - one of them was registering a birth.
So again your CPU will claim that phone got better, but in real life I have to spend more money to remain an functioning member of society.
Companies are making new feature phones today that will connect with cell networks. And are you really required to have a smartphone to register a birth? Was there not a workaround for feature phones? State governments have to be able to let indigent people register births, so there must be a workaround.
It's not really doing it for me, is it? The requirement that I pay for modern internet is forced on me against my will.
Employers require that they can see my face when conducting an interview, the government requires that I apply for a visa online and upload 300 mb of documents.
The hospital demands that I register online and work with their system.
If you don't want to be homeless, you must pay for the modern service. And if it is more expensive, then inflation went up, your budget is less today than it was before.
And both food and energy are very chaotic (especially due to geopolitical events: thanks Russia!). A couple of years ago there was much rending of garments over gas prices in the US: now, not so much.
So that is why inflation is often also looked at without those two components because they can vary so widely, even month-to-month (anyone else remember when oil went negative in 2020?).
But I think that is the largest failure of Core CPI to the point it makes it almost worthless. Is it more stable? Sure, but stability isn't great if it doesn't measure the right thing.
It's not: if policy was determined on non-Core, then one month the Fed would have to raise/lower rates, and then the very next month it would have to do the opposite.
The point of Core is to removed the gyrations of commodity (traders). See Chart 1 of:
* https://www.frbsf.org/education/publications/doctor-econ/200...
The red line is whipsawing all over the place. You want to set policy on that?
Paper from the Bank of Canada on the topic:
Well, except Fed policy doesn’t really use CPI (Core or otherwise) at all. The Fed's evaluation of prices that informs monetary policy centers on the PCE, not CPI.
And while that's their key indicator, their actual analyiss underlying policy decisions isn't just applying a fixed function of current top-level indicators to get a monetary policy as output; there is considerable analysis of trends and what is going on below the top-level indicators, etc.
You don't need to board consisting of multiple Senate-confirmed officers with large supporting expert staff to apply a simple function of headline indicators from other agencies to produce an output, so the BLS not separately calculating and publishing core CPI wouldn't effect the Fed doesn't use CPI, and does a level of analysis with the indicators it does use that if it thought something like the particular aggregate used for “Core” was necessary and not in the publication, they’d just recreate it from the lower-level components.
[0] the components involved also have a high seasonality, but that can be addressed via seasonal adjustment, but the high non-seasonal volatility means that fluctuations in those components can drown out early trend indications in ways that seasonality adjustments can’t compensate for.
Neither are remarkably different in utility, but both have seen astronomical increases in cost.
As for housing, only new housing has changed, old one mostly hasn't. Also if it's a somewhat bigger house but it's more remote from city center where people work, leading to higher commute times and expenses, is that supposed to be better or worse, how do you quantify that?
Depends on the house.
Square footage has increased, and so have building and efficiency (insulation, air tightness) codes.
Workers for sure have not seen their wages go up, and consumers haven't seen prices go down. Who's stealing the wealth of the world?
A cell phone indeed, but for personal computers, the gain we got from the technological advances isn't as clear from a consumer's perspective. Sure there are niche activities like video processing or graphic editing, where the performance improvements allows for things barely imaginable 20 years ago, but for most use case people have, there isn't that many significant difference:
- boot time: despite SSD, consumer PC still take minutes to boot when they aren't brand new with a fresh install.
- web browsing, not even faster.
- Word and Excel, barely changed over the period.
- video games: sure they have more realistic graphics, but that doesn't make them more enjoyable otherwise.
The average house computer is now a laptop that's permanently plugged to the socket (with a long dead battery) instead of a desktop. It takes less room in the house, but also has a much smaller screen, a worse keyboard and no mouse. Is that a net gain?
We don't spend equal amounts on those categories and stacking the graphs obscured the relative changes. There is no analysis worth anything in the text.
It's just showcasing a pretty graph
I would expect I can compare today to an arbitrary time in the past. But the visualization actually shows 2000 vs an arbitrary time in the future. How is that a useful comparison? What is special about 2000?
I don't care about the buying power of a dollar from 2000 in 2015. I do care about the buying power of a dollar from 2015 in 2023.
also, isn't inflation always calculated on a 12 month scale? each month they publish how much prices have increased from 12 months before. This means that if there is a lot of inflation for a few months, each succeeding month after that will show high inflation till that bulge in the snake works it's way through. The numbers are a valid comparison to a year earlier, but misleading if you think "omg we've had month over month of high annual inflation numbers!"
However, median income is very misleading because it does not include goverment transfer payments, which are substantial in that income range.
Is this driven by some % annual increase policy?
Inflation is how we pay for deficits.
Is running a federal deficit and an increase in the money supply the same thing? Because my contention was with what Walter right actually said.
No. The money supply will naturally increase as the value of goods and services in the economy grows. (This creation is done by the banks loaning money against collateral, it's a rather complex subject.) If the money supply increases faster than that, we have inflation.
The way it increases faster than that is via the fiat money printing press.
Here's another way to look at it. The US had a net zero inflation from 1800-1914. Everything the current government blames as a cause of inflation happened all over that time period, but no net inflation. From 1914 on, we've had endemic inflation.
Any explanation of inflation has to account for that.
The creation of the Fed accounts for it. It was given the power to arbitrarily create money, and so they did, to fund the deficits. Every other country saw the magic of this, and switched to fiat money and inflation.
Not much mention that on the production supply side, we have record corporate profits.
On earnings calls CEO's just come right out and say 'because of covid, we are able to raise prices, and man it's great'.
A lot of inflation is in the supply side just raising prices and making more profit. If there really was a supply chain issue, then the suppliers should also be squeezed, then themselves have lower profit because their source prices were higher.
But it is really just the consumer facing prices that go up. A lot of inflation is profit taking on the corporate side.
The US CPI went up 21.9% over the past 5 years[0]. The PPI went up 27.3% over the same timeframe[1]. So it's untrue that it's just the consumer-facing prices that have gone up; the producer-facing prices went up even more.
Corporate profit margins are high compared to historical averages, and total corporate profits went up by 40.7% over the past 5 years[2]; but the money supply went up by even more, by 47.1%[3]. So perhaps it's fair to say that businesses have been good at capturing the bulk of the additional money supply. Real (as in inflation-adjusted) personal incomes went up 9.4% over the same timeframe[4].
Consumer behavior was in turbocharged spending mode, fueled by rock-bottom interest rates and fiscal largesse. When supply remains constrained and demand goes through the roof, prices rise. Nothing too mysterious there.
[0]: https://fred.stlouisfed.org/series/CPIAUCSL
[1]: https://fred.stlouisfed.org/series/PPIACO
[2]: https://fred.stlouisfed.org/series/CP
Had not seen the 40.7 and 47.1 comparison before.
I guess, also Corporate Profits are larger, but the are also in Inflated Dollars.
Guess the key problem is, if they have captured more of the new dollars, and salaries have not kept up. Then Joe Blow is the one in trouble.
How do you explain the zero net inflation from 1800 to 1914? Were corporations unaware that they could just raise prices? That sounds far-fetched.
You can see it in graphs of deficits compared with graphs of inflation. The inflation has about a 13 month lag behind the deficits.
Because you now have less money, demand for other goods and services is lowered, and because of the Law of Supply & Demand, those other prices are forced down.
Now, suppose the government prints an extra $10, and gives it to you. Now you have $80 for other expenses. Your demand for other goods and services goes up, and so because of the Law of Supply & Demand, those other prices go up.
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Another way to think about it. Money is affected by the Law of Supply & Demand just like everything else. Printing more money means there is more money (!), and more money chasing the same value of goods and services means the individual dollar are worth correspondingly less.
How did more money get into the hands of consumers aside from that one-time $1500 paycheck?
Increased demand results in price increases. The Law of Supply & Demand. Crazy, I know, but it is The Law.
> How did more money get into the hands of consumers aside from that one-time $1500 paycheck?
The deficit money got spent into the economy. It first flows into the hands of the voters being bought with it. Then, those people spend it, and it flows into the rest of the economy. It's like dumping a barrel of paint into a pond. It takes a while for it to spread out evenly.
Every time a special interest gets funded, everyone else holding that currency loses purchasing power.
The power to print money arbitrarily is (quite objectively) the to power to levy taxes without going through the democratic process.
The alternative is raising taxes and/or cutting spending. Neither of which are happening any time soon.
You're right. And this is the reason why people desperately refuse to face the fact that inflation comes from deficit spending.
[1] https://educationdata.org/average-cost-of-college-by-year
[2] https://www.cnbc.com/2017/11/29/how-much-college-tuition-has...
Edit: I would have assumed the OP article was based on this series: https://fred.stlouisfed.org/series/CUUR0000SAE1
There's an interesting chart that shows how inflation has been distributed very unequally in the economy over the last 20 years. Things like healthcare and housing where the supply is legally/artificially constrained (thus preventing natural price deflation) have seen the biggest increases.
https://www.investors.com/wp-content/uploads/2018/03/CPIChar...
Car prices have definitely shot up quite a bit.
But the Oil Embargos hit the US twice in the 70s, during that period inflation spiked and only settled down when the price of Oil stabilized. USD had adjusted to the new prices.
Then in the last 20 years, a few times we had some relativity minor shocks due to OPEC decreasing production among other things. Thus inflation.
People like to point to other things, but to me, our economy is directly tied to the price if energy. And maybe that is why trying to get off of fossil fuels seems almost impossible.
And not counting the price of Energy in our inflation numbers skews our real issues.
https://russellinvestments.com/us/blog/inflation-pales-to-19...
https://www.epbmacroresearch.com/blog/initial-conditions-for...
I have a J. Crew shirt from 1999 I can still wear, which cost $49 in 1999. Equivalent shirt today will be $98, the buttons and stitching will be horrible comparatively and it will die a faded death after a couple of years.
The new shirt, however, will photograph really well online.
On the other hand, the value of a Dollar...
The Morgan Silver Dollar from 1901 that I keep with me as a reminder, is worth about $17.50 in melt value.[1] The folks my age and younger generally don't appreciate the value of hard money.[2] It's almost always bought about 4 gallons of gasoline, or a meal for one. Say what you will about the inefficiency of a commodity backed currency, it won't shrink to zero value over time.
[1] https://www.coinflation.com/coins/1878-1921-Silver-Morgan-Do...
While the value of silver coin did not shrink to zero during that time, it did shrink quite a bit, all across Europe. Historians like to write about 150 years of massive inflation.
Prices rose on average roughly sixfold over 150 years. This level of inflation amounts to 1.2% per year compounded
You can see clearly that the categories with the most inflation are those that can’t be traded: housing, education, medical care are all dependent on American regulatory cartels.
I’m not one of those libertarian types who believes the fed is a giant conspiracy, however there is something to be said for mechanisms that cap the ability to print money
The US government is the biggest debtor in the world. Inflation is good for debtors. The US government is controlled by monied interests. Inflation, as a wealth transfer from poor to rich, is good for monied interests.
Academic economists as always exist to provide air cover for the regime.
https://www.shadowstats.com/alternate_data/unemployment-char...
The labor force participation rate, defined as the percentage of people 16 years of age or older who are working or seeking work (minus "institutional", aka military) currently sits around 63%. The US population is roughly 17% over 65. Those three numbers roughly add up to 100%.
"Hedonic quality adjustment" is the preferred term. ;-)
That is not a fictitious example. That explanation was actually given.
No. Just No.
First off the math makes absolutely no sense:
> But if we take away the outlier 2020 data points, the average real annual GDP growth from 2010-2019 was 2.3%. The inflation rate in that time averaged roughly 1.8% per year.
> If you’re one of the conspiracy people who believe inflation has actually been running at 5-6% per year, that would assume the economy has been contracting by 1-3% per year over the past 10 years.
> And if you’re a full tinfoil hat person who assumes inflation is actually 10-12% per year[2], that’s like saying we’ve been in a full-blown depression and the economy has lost 80% of its value.
* https://awealthofcommonsense.com/2021/01/inflation-truthers/
Second, the methodology is all wrong:
* https://www.fullstackeconomics.com/p/no-the-real-inflation-r...
As much as you can call it a "methodology" of taking the official CPI number and adding your own, which the author of the site admits to:
> I’m not going back and recalculating the CPI. All I’m doing is going back to the government’s estimates of what the effect would be and using that as an add factor to the reported statistics.
* http://econbrowser.com/archives/2008/10/shadowstats_res
* https://en.wikipedia.org/wiki/Shadowstats.com#Negative
Further, the current price of a subscription to the 'full report' is $175/year right now, the same as it was in 2014:
* https://www.pragcap.com/update-theres-still-deflation-in-hyp...
the same as it was in 2008:
* https://www.pragcap.com/why-is-there-deflation-in-hyperinfla...
So even though there is supposed to be very-high inflation per this site, the site itself (and all the staff that have cost of living expenses) has not experienced this very-high inflation over the last fifteen years? Really?
But you don't have to pay that amount because here's the formula in how they determine their 'inflation rate'
SHADOWSTATS(t) = 1.9 + 0.0055*t + CPIAUCNS(t)
Of course you don't have to take anyone else's word for it, but do your own analysis:
> Compare the government statistic to what MIT's Billion Prices Project (an index of internet prices, scraped daily) found. CPI and the BPP index are very tightly intertwined, whereas SGS would be way, way off.
* https://old.reddit.com/r/Economics/comments/omfrm/3_reasons_...
Also: inflation is NOT fundamentally about price changes. Inflation is purely the result of arbitrary expansion of government fiat money supply.
A simple example drives this home. One could say that a $1,000 computer of say 10 years ago was much less powerful than a $900 computer of today, and be right. One could say that inflation hasn't affected computers, and they would be wrong. Without the expansion of fiat money, that $900 computer would be, say, $500 or less. The final price is not how inflation can or should be measured.
Laws and manufacturers have decided for me though. No fighting it now.
But "intermittent windshield wipers" should not be an optional feature, Toyota!
I.e. that other methods of measuring inflation try to capture the advances in technology for a basket of goods is something done intentionally and not in error (or maliciously... by the majority of economists at least). Capturing this accurately is very difficult since quality can change, the basket of goods that makes sense to measure itself can change (what's a computer?), consumer behaviour can change, and so on. I don't think anyone has a perfect model but "ignore it all, just look at the money supply" didn't turn out to be a great model either. At the same time, in my understanding of most models (including the basket of goods CPI approach), monetary supply remains a key influence on the changes found in measurement.
And even Friedman recanted this view in an interview: (Financial Times (UK), June 7, 2003):
> The use of quantity of money as a target has not been a success. I'm not sure that I would as of today push it as hard as I once did.
During the 1980s, the heyday of right-leaning economic thought, not even Reagan and Thatcher (or Volcker) bothered with money supply during in the high-inflation days: see the book Samuelson Friedman: the battle over the free market by Wapshott for a good history.
What's more important is what the money is doing; having just a pile of money tells you nothing. Cullen Roche has a good explanation:
> But also – why do so many people insist that inflation is an increase in the money supply? This makes zero sense. Here’s why – our economy is mostly a credit based economy. So, if I take out a loan for $100,000 then the money supply has technically increased by $100,000. But what if I don’t actually tap that loan? What if I borrow the money because, for instance, house prices just went up 25% and I want to have some cash around for emergencies? This doesn’t tell us anything about prices, living standards or really anything. But this is what so much of the money supply represents – money that has been issued and is just sitting around unused. Why is this useful? It’s like calculating your weight changes by counting how much food you have in your refrigerator. No. That’s potential calories consumed and potential weight gain. The amount of food in your fridge tells you little about your future weight changes just like the amount of money in the economy tells us little about the actual price changes in the economy.
* https://www.pragcap.com/three-things-i-think-i-think-i-see-d...
Japan's money supply has constantly gone up over the last few decades and it has seen deflation more than once during the same time period: