The Curiously Different Inflation Perspectives of Men and Women [pdf]
clevelandfed.org
clevelandfed.org
Austrian School economists have anticipated this, and would point out that this is the natural outcome of our monetary policy. Inflation perception is higher at the lowest income groups because inflation is higher for things they purchase. Over time, this effect increases inequality, another effect already observed.
Yet, conventional economic wisdom attributes the rise in inequality not to Fed policy but to technology change (on the "right"), tax-cuts-for-the-rich (on the "left") ...
http://research.stlouisfed.org/fred2/graph/?id=CPIAUCSL,CWSR...,
At lower income levels, a much higher percentage of one's total income is spent for life's basics (i.e., food and fuel being the big two). Therefore any increase in food or fuel costs (both of which have risen rather much the last few years) takes an ever bigger bite out of an already small income pie. Therefore making low income individuals very sensitive to price changes in these basics. Potentially leading to a perception of a higher overall inflation than what is actually happening in the market as as whole.
True. It's also causes more impact because the delta comes out of a smaller pot in the first place.
I intuit that people on higher incomes are more likely to see rising salaries in real terms (either by growth-in-job; internal promotion; or selling themselves to the highest bidder).
The other side of that intuition is that those on lower incomes are more likely to be stuck in dead-end jobs, getting whatever across-the-board "cost-of-living" increase their employer decides to award. If (as is often the case) this is below CPI, then the inflation in the cost of their basket of goods is effectively higher for them.
I think you'd need some evidence that the lowest income groups experience higher inflation to make this connection. As distinct from merely reporting a perception of higher inflation.
Further, you'd also want to isolate from other notable observed data, such as stagnant-to-falling wages among the lowest income groups over the last couple generations.
One would expect people with stagnant wages and inflating prices to "feel" the negative effects more than those with inflating wages to offset or match those inflating prices. But that doesn't necessarily mean that the inflation component is the culprit for any perpetuated or exacerbated inequality.
I don't agree with this. The Consumer Price Index is how we Americans typically measure "inflation" which measures the change in retail prices of a "market basket" of goods from period to period. The Bureau of Labor Statistics goes to great lengths to determine this market basket. You are essentially saying that the BLS is favoring a higher income basket over a lower income basket and if they focused on the latter, CPI would report much higher inflation. I don't think this is true. CPI is far from perfect, especially if you introduce Austrian definitions of inflation, but I think they do a good, consistent job. Here is a BLS description of market baskets. http://www.bls.gov/cpi/cpifaq.htm#Question_6
I agree with others who replied to your comment that hypothesize this dynamic is the result of a disproportionate impact to a low income household's bottom line from price inflation. This essentially the concept of operating leverage applied to households. Assume a typical family needs to spend $40K a year to pay for the basics. A $50K household will have $10K left over and a $100K household will have $60K left over. If prices increase by 5% on the $40K, that's now $42K. The $50K household has $8K left over, a 20% reduction from $10K previously. The $100K household has $58K left over, a 3.3% reduction from the $60K previously.
So in the specific area of "public transportation", the basket favours higher-income households. Not that I think this is necessarily representative (public transit is a tiny slice of the CPI, 1.2%); I just think it's surprising and amusing.
That is easily disproved. It is quite easy to find periods where lower income people face lower inflation, but still estimate higher inflation. (basically any period with food & gas price deflation, which represents a larger component of a lower income basket)
The reason lower income people ascribe a higher number to perceived inflation is because when you live paycheck to paycheck price changes are simply more concerning.
Some of the highest inflation categories are higher eduction, and healthcare which are under represented in lower income baskets.
Really? This is ridiculous. Men and women do buy very markedly different things in general, especially in family life. For example, men disproportionally buy technological items which contribute significantly to the stable CPI.
CPI isn't just bread and butter... if it were inflation rates would be higher. Since the government can point to easier access to quality-of-life-enriching items like computers, which fall in price for equivalent goods year over year, it can manipulate the stats and make inflation look very low. This is appropriate for an "ideal" household that buys exactly that the CPI index holds.
But on the other and someone who buys disproportionally the items that are rising faster than the CPI really does feel a higher inflation rate.
It certainly seems conceivable that women tend to buy items that are rising in price faster than the CPI more than men.
It's also possible that marketing gimmicks disproportionally target women, with clothing coming to mind for example: perhaps sticker prices rise much faster than inflation, but post-"SALE" prices don't. This is a gimmick designed to encourage buying of deep sale prices, that may play better in clothing than in other industries, and that thus women fall victim to more. But since the sticker prices rise, they're noticeable.
The article provides some evidence that this is not a short run phenomenon, nor a phenomenon limited to the US. A similar gap is present among Swedes in 1977, and persisted in the US from 1987-2000.
The difference between core CPI and exponentially smoothed CPI (which removes volatility but includes long term changes in food and fuel) is negligable:
http://www.newyorkfed.org/research/staff_reports/sr236.pdf
There may be gaming in CPI, but excluding volatile components is not it.
Another way to see it: CPI and Core CPI track each other pretty closely, and until recently Core CPI was actually higher than CPI: http://research.stlouisfed.org/fredgraph.png?g=cMs
Check out http://www.shadowstats.com/: "One of my early clients was a large manufacturer of commercial airplanes, who had developed an econometric model for predicting revenue passenger miles. The level of revenue passenger miles was their primary sales forecasting tool, and the model was heavily dependent on the GNP (now GDP) as reported by the Department of Commerce. Suddenly, their model stopped working, and they asked me if I could fix it. I realized the GNP numbers were faulty, corrected them for my client (official reporting was similarly revised a couple of years later) and the model worked again, at least for a while, until GNP methodological changes eventually made the underlying data worthless. "
Most of the "tricks" proposed by conspiracy theorists for tweaking CPI only work once or twice.
What this study showed is that perceived inflation is real and doesn't jive with the numbers that the economists produce. Who is right? A 500 person sample will be good to predict the sentiment of the US as a whole. Gallup says that they only need 1,000 people to get +-4% so this is reasonable.
Ask yourself, which is more likely? The entirety of the US population doesn't understand how prices affect them day-to-day. Or that some economists have devised a moderately useful but not flawless metric?
Price formation comes from the relative values that every human being places on the marginal unit of a good. Prices are an emergent property of people interacting chaotically in a marketplace. To suggest that literally EVERYONE's ability to sense the change in price over time you also need to throw out the very people that set the prices to begin with.
EDIT: Link to gallup http://www.gallup.com/poll/101872/how-does-gallup-polling-wo...
Or, more precisely, the US population does not accurately remember prices from years ago. I definitely couldn't tell you how much milk cost in 2005.
Do you actually believe this?
It's not that the BLS covered anything up, but rather than the CPI is a flawed metric and it's continual revisions always go in the favor of the central bank.
When the dot com bubble burst we had the first ever recession where housing starts and car sales didn't decline. Doesn't that seem strange to you? That smells fishy to me.
I'm not saying that the BLS are a bunch of evil geniuses who through brilliance and skull-duggery keep us all in the dark. I think it's much more plausible that a few key people jigger things to do political favors to others and it makes the CPI look lower than it should.
It's the interaction of everyone in a marketplace that sets prices to begin with. Without people, you can't have prices that are meaningful. So if you want to say that people aren't competent to understand inflation, then it seems to me that you also have to say that people aren't competent to set prices. Since the latter is not true (by definition), I'd suggest that the former doesn't hold either.
1) The link explicitly claims that hamburger was not substituted for steak (and the shadowstats link does not contradict this, only claims that it was proposed). So why are you claiming that Greenspan did perform this substitution?
2) I don't find their explanation laughable at all; I find it entirely plausible. And, without having read all of the shadowstats site (only about half of the article on the CPI), I found it ... long on wild claims, short on methodology or references.
With this in mind, I'd be curious to hear a clarification of what you meant, and why you believe it.
Using a geometric average implies that the basket of goods selected CHANGES depending on the change in prices. So in 1950 when a ribeye was cheap, 1lb of it was included in the basket of goods. Now that it's more expensive, only 0.5lbs of it are included in the basket.
This is a made up example. Prices are not correct. Just for illustration. 1950: hamburger - $0.50/lb ribeye - $2/lb arithmetic mean: (2 + 0.5) / 2 = $1.25 geometric mean: sqrt(20.5) = $1.00
2012: hamburger: $3/lb ribeye: $18/lb arithmetic mean: (3 + 18)/2 = $10.50 geometric mean: sqrt(318) = $7.34
Arithmetic inflation: 10.50/1.25 = 8.4 Geometric inflation: 7.34/1 = 7.3
The geometric mean has two wonderful properties: 1. It makes the average price lower by adjusting the quantities included based on their relative prices 2. It makes the inflation over time seem lower as well
I'm not saying that this is some giant conspiracy by "the man" to "keep us down" but I would argue that it's intellectually dishonest.
In order for the CPI to be useful to make comparisons from one year to another the quantities of goods in the basket have to remain constant. Since the geometric mean effectively varies the quantity in the basket (relative to arithmetic) I would argue that it robs the CPI of any power to provide real comparisons.
If we did this correctly, inflation would likely be drastically lower. The biggest driver of inflation is health care, and 1970's health care is pretty cheap.
In fact, CPI only measures instantaneous inflation - the inflation rate of today's basket of goods. It is fundamentally incorrect to treat chained CPI as inflation, particularly over long periods.
If you actually want to measure inflation between two endpoints, you'll actually need a formula which depends on the starting year - i.e., you'll have CPI1970 which will be fundamentally different from CPI1990 or CPI2012.
How come some economists can say that the system they are studying is "wrong" relative to their models and be taken seriously? If your model doesn't line up with the data, it's wrong!
I do have an idea that they didn’t test however:
The women I have dated in the past seem to have selective memory about what they purchase. They seem to shop and talk about shopping like people who gamble. They will tell their friends all about the item they saved $50 on 8 months ago but rarely talk about the items they overpaid for. (gamblers like to talk about wins, but not losses) I can't speak to the shopping habits of most men, but I go to a store and quickly get what I need for a reasonable, but sometimes high price and exit as quickly as possible. I rarely remember what I paid for particular items I got on sale, but know that a shirt should cost about $50. Etc.
Is it possible that the sample of the women I have dated are similar to a statistically significant number of women who have selective memory about past purchases? I obviously don’t know the answer, but if it is true, I think that is a reasonable thing to test and is backed by the fact that women perceived clothing as a significant driver of the inflation above the men (page 3).
[Note] Some of what may be driving this is cultural like women not wanting the guys they are with to think they are wasting money and the desire to talk about the deal they got like shopping is a skill with their friends. This may be US/Swedish style cultures.
Researchers could test this by surveying other cultures which are less similar to US culture which couldn't prove this theory, but could disprove it.
Perhaps people who are more likely to feel that the economy is sucking are also more likely to take pessimistic views of every economic indicator, even the ones that, in fact, are not sucking.
Both the distribution of observed price changes, and the probability of forgetting/remembering, could be different between men and women.
For example, suppose women buy equal amounts of two different goods X and Y.
On even-numbered years, manufacturers raise the price of X by 6% and keep price steady on Y. On odd-numbered years, manufacturers raise price on Y by 6% and keep price steady on X.
Actual inflation is 3% but women see a price jump of 6% per year in one of the products they buy. If they only notice/remember changes in prices and ignore/forget prices staying the same, then they'll report inflation as 6%.
Men buy equal amounts of X, Y and Z, where Z increases by 2% per year. Thus, men report an average price increase of (2% + 6%)/2 = 4% per year, again ignoring the non-inflating good.
All these numbers and effects are totally made-up speculation, but the idea seems sound and reasonable.
so how come food prices are so stable in ohio?