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Another thing I don't understand about the basket of goods approach to measuring consumer prices is how we're getting inflation figures which are so low. Since

Another thing I don't understand about the basket of goods approach to measuring consumer prices is how we're getting inflation figures which are so low. Since goods we buy priced in USD have gone up massively in 2-3 years due to a falling Canadian dollar (electronics, smartphones, computers, SaaS, etc.), the only way the basket stays at 2% YoY growth is if that's offset by other things falling in price. But, anecdotally, home services, energy cost, health services, food and clothing are all more expensive now than a few years ago, the only exception I can think of off the top of my head is gasoline, which has fallen. Edit: This StatCan paper (http://www.statcan.gc.ca/pub/62-553-x/62-553-x2015001-eng.pdf http://www.statcan.gc.ca/pub/62-553-x/62-553-x2015001-eng.pd...) explains CPI in detail and it seems like the basket is thorough and well-thought-out. Appendix B outlines all the components and their weights, and both homeowner costs, rents, and mortgage interest costs do factor into the shelter calculation.

maerF0x0 9y ago
The cynic in me suggests that the basket might intentionally be chosen to hide the fact that the cost of living is going up. Lots of people with money have incentives for inflation numbers to be low. ex: COLA raises are common and benefit if the CPI hides the true costs Ex2: many government benefits are tied to "inflation" . If your personal basket inflates faster than their example basket then they can get away with paying you less than promised (in spirit).
- guelo 9y ago
  I do not appreciate random unfounded conspiracy theories like this comment.
nickik 9y ago
I can not talk about the ins and outs of the statistical measures. But from an economist perspective relative price changes of one good to another are usually not very relevant. The measure for real domestic deflation you want to look at is the 'GDP Deflator'.
cthrow 9y ago
Wages haven't gone up, so while you may have shifted allocation of purchases within the CPI basket, your total spending is probably around the same as it was last year, and the year before that. EG you buy more electronics and gas (cheaper), and less clothing and food (more expensive), but your overall spending remains ~50% of your income, which hasn't changed. Wages are usually the primary driver of higher CPI measured inflation. Inflation has occurred outside of CPI basket, most notably in equity markets and real estate prices in large urban cities - and bitcoin :)
- JackFr 9y ago
  > Inflation has occurred outside of CPI basket, most notably in equity markets and real estate prices in large urban cities Those are assets rather than goods. They are neither produced nor consumed. That being said, yeah, it's no mystery that low rates have caused asset price inflation, not consumer price inflation.
  - dredmorbius 9y ago
    The problem with your comment is that durable goods do in fact have many of the characteristics which are desireable of financial vehicles and assets: utility/value, portability, indestructibility, homogeneity, divisibility, stability, cognixability. (William Stanley Jevons, Money and the Mechanism of Exchange https://archive.org/stream/moneyexchange00jevorich#page/n7/mode/2up https://archive.org/stream/moneyexchange00jevorich#page/n7/m...) And whilst land may not be particularly portable, land ownership is. Other productive assets: metals, grain, productive plant, etc., may also have financial asset value. Also goods which aren't particularly useful such as fine art.
  - cthrow 9y ago
    It's all a matter of technicalities and definitions :) You are consuming housing when you pay rent/mortgage. A house is built, and then its owners consume it in "housing units", or rent those "housing units" to other for consumption. Likewise that ground beef you have in the fridge is an asset - you can sell it to your neighbor at any point before you consume it. Equity is a claim on a company's assets. If General Electric goes bankrupt and you own GE stock, you will get paid out (after everyone else) a share of the bankruptcy proceeds. So in a way you own some of what GE produces, some of the inputs it consumes, etc. You can look at literally any transaction as an investment into an asset (generally durable goods) or the purchase of a good for consumption (generally non-durable goods). It depends on how you want to record it on your personal balance sheet...

maerF0x0 9y ago

The cynic in me suggests that the basket might intentionally be chosen to hide the fact that the cost of living is going up. Lots of people with money have incentives for inflation numbers to be low. ex: COLA raises are common and benefit if the CPI hides the true costs Ex2: many government benefits are tied to "inflation" . If your personal basket inflates faster than their example basket then they can get away with paying you less than promised (in spirit).

guelo 9y ago
I do not appreciate random unfounded conspiracy theories like this comment.

nickik 9y ago

I can not talk about the ins and outs of the statistical measures. But from an economist perspective relative price changes of one good to another are usually not very relevant. The measure for real domestic deflation you want to look at is the 'GDP Deflator'.

cthrow 9y ago

Wages haven't gone up, so while you may have shifted allocation of purchases within the CPI basket, your total spending is probably around the same as it was last year, and the year before that. EG you buy more electronics and gas (cheaper), and less clothing and food (more expensive), but your overall spending remains ~50% of your income, which hasn't changed. Wages are usually the primary driver of higher CPI measured inflation. Inflation has occurred outside of CPI basket, most notably in equity markets and real estate prices in large urban cities - and bitcoin :)

JackFr 9y ago
> Inflation has occurred outside of CPI basket, most notably in equity markets and real estate prices in large urban cities Those are assets rather than goods. They are neither produced nor consumed. That being said, yeah, it's no mystery that low rates have caused asset price inflation, not consumer price inflation.
- dredmorbius 9y ago
  The problem with your comment is that durable goods do in fact have many of the characteristics which are desireable of financial vehicles and assets: utility/value, portability, indestructibility, homogeneity, divisibility, stability, cognixability. (William Stanley Jevons, Money and the Mechanism of Exchange https://archive.org/stream/moneyexchange00jevorich#page/n7/mode/2up https://archive.org/stream/moneyexchange00jevorich#page/n7/m...) And whilst land may not be particularly portable, land ownership is. Other productive assets: metals, grain, productive plant, etc., may also have financial asset value. Also goods which aren't particularly useful such as fine art.
- cthrow 9y ago
  It's all a matter of technicalities and definitions :) You are consuming housing when you pay rent/mortgage. A house is built, and then its owners consume it in "housing units", or rent those "housing units" to other for consumption. Likewise that ground beef you have in the fridge is an asset - you can sell it to your neighbor at any point before you consume it. Equity is a claim on a company's assets. If General Electric goes bankrupt and you own GE stock, you will get paid out (after everyone else) a share of the bankruptcy proceeds. So in a way you own some of what GE produces, some of the inputs it consumes, etc. You can look at literally any transaction as an investment into an asset (generally durable goods) or the purchase of a good for consumption (generally non-durable goods). It depends on how you want to record it on your personal balance sheet...