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Comment by slibhb | Hacker News Reader

It's interesting that consumer sentiment apparently tracks the older formula more closely. Presumably we have data that could allow us to include "the price of money" in inflation metrics, perhaps weighed based on how much the average American borrows.

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Headline consumer sentiment is polluted by junk like this article. People report their personal household situation is fine and they expect it to continue being at least this good or better in 1 and 5 years. But they've heard so much shadowstats horseshit on the radio that they are compelled to stake out a negative view on the economy as a whole.

In the latest UMich consumer survey majority of respondents expect their incomes to grow faster than prices, in fact the reported probability of real personal income rising has never been higher in the history of the survey. And, with respect to inflation, consumers expect incomes to rise about 2.5% per year, and that expectation is higher than the expected increase in prices. During times of very high inflation respondents reported expectations of 6% nominal income increases. So this is all consistent with the idea that inflation as people actually experience it has been moderate. But, further down the February results, you can see that record numbers of people report hearing negative news stories about prices, way way way higher than in 1980! Which is totally crazy if you were here in 1980! You can also read further and see that expectation of rising unemployment have been consistently high for the last 5 years, and reports of having heard news stories about unemployment have been at record highs, while responses about the probability of losing their own job are at record lows and of course objective unemployment is almost dangerously low.

What does any of this have to do with ignoring the price of money, a real cost that people have to pay?

>But, further down the February results, you can see that record numbers of people report hearing negative news stories about prices, way way way higher than in 1980! Which is totally crazy if you were here in 1980!

If you had taken a moment to consider the data presented in the article instead of dismissing it out of hand because it offends your sensibilities, you would realize it states that it obviously implies it is not crazy to hear more news about inflation nowadays than in the 1980s, because it shows inflation is worse nowadays than in the 1980s. Feel free keep raving about how you get a much better vibe from the economy today despite the info if that's what matters more to you, though.

> because it shows inflation is worse nowadays than in the 1980s.

Obviously you didn't live through the 1980's, because that is obviously false to anybody who has.

>If these facts are so right, why do they sound false to me?

Again, this appeal to the vibe you're getting right now is not compelling to anyone who actually cares about economics.

His vibes agree with what economists think. Look up what happened in the late 70s and early 80s.

You mean the time that I read and memorized long ago had an inflation of 14%? You have read the title of this post, right? And you're aware that 18 > 14? If I assume you are, you are just making another vibes-based assertion. Would you rather I didn't?

Bad facts are not useful. The article compares the consumer sentiment index from the 80s with today's. That's a made up number, only relevant for short term relative comparisons. Long term absolute comparisons have little value. What's the Y axis on that?

That's more than a bit of a word salad so I'm just going to leave this for you to read: https://imageio.forbes.com/specials-images/imageserve/65fec8...

The experienced inflation is the area under the spike in that graph. And the area is approximately way larger in the 80's spike. Above 7% for a decade versus 2 for the current spike. And just like interest, that compounds over time.

Oh, this got even worse than I expected. Let me show you another graph, then. This is FRED's official price index, which is the source of the blue inflation line in that graphic. I've overlayed two red lines for its value in the eleven years from Aug 1972 to Aug 1983, plus two orange lines comparing its value now (Mar 2024) to Mar 2013, also eleven years. Notice how the gap between the red lines is a price rise of $58.2 on a 1982/84 $100 basket, while the gap between the red lines is a rise $79.948, which is significantly higher: https://fred.stlouisfed.org/graph/?graph_id=1327450

Now imagine how much worse this would get if we did these calculations with the yellow line data instead, which is essentially the same in the 70-80s but much worse today. (Or maybe also imagine how much worse the past ten years could be five years from now if we got a second inflationary spike like the 70s-80 did, making this a more apples to apples comparison!)

Average of 10% inflation for ten years and the magic of compounding means that prices were up 2.5X in that decade.

Did prices almost triple in the last ten years?

It doesn't matter whether you count the CPI that double counts interest or not.

Nothing you said has anything to do with the article and its proposal to incorporate interest rates into inflation. Maybe it's your type of post that should be considered polution.

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