And $1 in food is $1.84 today? I don't have an index to reference, but also hard to believe.
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.
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For example a 25p can of peas may be withdrawn from sale by the manufacturer, so the next month ONS would switch to checking the price of a 30p can of peas (the next cheapest can).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.
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.
> 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.
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.
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.
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.
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.
I tried to ask HN about this a day or so ago…
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.
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.
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.
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.
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.
Which should be changed, under the constraint that they must sum to 100?
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.?
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
$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.
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...
The actual TFA is specifically about this very point!
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.
Not it doesn't.
This is the primary difference between liquid and non-liquid assets.
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.
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.
[0]:https://smartasset.com/data-studies/where-home-prices-fell-2...
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.
* 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.
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.
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.
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.
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.
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:
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.
Maybe the person you're replying to is using the wrong terminology.
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.
Case-Shiller is up ~220%
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.
Up until 1999/2000, a Burger King Whopper was $1.
Today ~$8
Yes inflation was higher in big cities.
But: would you rather buy say a car for $100k interest free or $10k at 10% interest?
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.
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.
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!”
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.