10 ms·

PSA: "Real pay" means nominal pay adjusted for inflation. So if pay went up by 3%, and inflation was 2%, you'd get something like a 1% "real" pay increase. Plea

by piker 8y ago

PSA: "Real pay" means nominal pay adjusted for inflation. So if pay went up by 3%, and inflation was 2%, you'd get something like a 1% "real" pay increase. Please reserve comment about the "cost of living" or inflation, as those are (technically) accounted for in this number.

Brakenshire 8y ago
Yes, although it's always worth asking what measure of inflation is being used. Whoever makes the statistic usually picks the measure most favourable to their point, the most common wheeze is not including housing costs where they should be included.
- stdbrouw 8y ago
  I agree that housing costs should be included in some way, but this is hard to do correctly because – at least if you buy – housing is an investment good, not an expense. In the US the bureau of labor tries to calculate the "owners' equivalent rent"; the EU on the other hand considers the cost of housing and inflation to be strictly separate measures. Rents are generally included, though.
  - humanrebar 8y ago
    > ...housing is an investment good... Only if you realize the appreciation somehow.
    - maccard 8y ago
      You realize it by default at the end of a mortgage when you're not paying it anymore.
      - howard941 8y ago
        Or you don't because you literally default on the mortgage. Or perhaps you rent and it's really hard to consider housing an investment. It's more like some hybrid of necessary living expense optionally coupled to a consumer investment not amenable to being written off as a tax loss.
  - IkmoIkmo 8y ago
    That's true at the EU level for the inflation measure of the European Central Bank. But national governments tend to have their own (modified) versions of the HCIP which do include things like owner-equivalent rent or mortgage rates. Not trying to argue semantics here, your point is completely correct but it may be confusing to say 'the EU (as if, as a whole) considers housing and inflation as separate measures'.
lotsofpulp 8y ago
Technically correct, but there are huge regional differences for real wage increase and cost increases in many countries, so what people experience is different than what a national statistic confers.
- api 8y ago
  I'm of the opinion that economic statistics become almost worthless from the perspective of politics and policy once you get to a certain sample size. A cost of living statistic that averages out cost of living between say Michigan and coastal California is quite wrong in both places. It will grossly underestimate cost of living in California and overestimate it in Michigan. I think this is one of the major problems with politics and economic policy setting at the national and global level. National and global leaders look at big aggregate statistics, which completely blinds them to the street level realities everywhere except those places that happen to coincide with the statistical median. Most places do not coincide with the statistical median. I think this largely explains the recent global populist uprising as well as the fact that global leaders were surprised by it. Large scale macro statistics might be useful for setting things like Fed interest rates, but they're nearly worthless for addressing local problems.
  - anoncoward111 8y ago
    This is exactly correct. Additionally, qualitative data needs to be factored into policy decisions as well. If a city looks and feels unsafe, dirty, deserted, and so on, then it probably is those things. No amount of statistics can explain away the experience of any unbiased, reasonable observer. Park your car in the center of town somewhere. Hang out and eat a sandwich with your windows open in your car. See who walks by, hear the noises, the beeps, the sirens, the shouting kids or quiet wind. Then you'll know what a town is really like.
    - IkmoIkmo 8y ago
      Not sure I agree there. There are plenty of historical examples of people seeing things in bizarre ways that simply weren't true. We see this recently with crime statistics dropping across the board, terrorism being less dangerous than bees, and people feeling less safe than ever. I'd say plenty of people aren't fully aware of ways in which their lives get cheaper or better. That's just 'normal'. Whereas growing up and paying $2 for a coffee, and now 15 years later it's $3, is just a sign of you getting squeezed, and people are very much aware of that. One cognitive / measurement issue here is hedonic inflation. For example, the average new home was 1000 square feet in the 20th century and 2500 square feet today. Meanwhile, average household sizes decreased. We all got bigger houses with fewer people to share them with. We also got universal central heating, hot piped water, flush toilets. Similarly, our computers have gotten faster. I don't need to explain the implications of moore's law to anyone here. Suppose the average $1000 computer gets twice as fast previous year. Is that to be measured as inflation or no change? No change? Perhaps, average prices remained constant. But inflation is, among other things, a purchasing power kind of metric. 'How much computing power can I purchase with this money'. In that sense, prices halved. In short, there was deflation, on a hedonic basis. This is something a lot of people don't realise. Inflation figures are sometimes suppressed by such improvements (which halved computing prices, even if sticker prices didn't change). Homes got more than twice as big, computers a thousand times as fast, these things can't simply be ignored by stating 'average homes and computers are more expensive', which is the reality that people experience in real life when looking at sticker prices of computers and rental properties. The reality that people often omit is that the product itself has massively improved. Same with healthcare. Yes, costs increased. So did outcomes. Try surviving cancer today vs 50 years ago. Try living till 80 years old on average, 50 years ago, when life expectancy was sub 70. https://ourworldindata.org/grapher/life-expectancy?tab=chart&country=USA https://ourworldindata.org/grapher/life-expectancy?tab=chart...
galieos_ghost 8y ago
housing cost, health insurance, and college tuition aren't counted in inflation. Economists and politicians can lie all they want but there's a reason people are angry enough to vote Trump or Bernie Sanders and it's because they can tell their standard of living is dropping. Don't piss on my boot and tell me it's raining If the establishment was doing it's job people wouldn't vote anti-establishment.
- sshagent 8y ago
  Indeed. My rent has gone up in 50% from 5 years, 100% total from 10 years ago. My salary is up just 20% over that 10 years and still well below what i was rocking pre 2008.
- IkmoIkmo 8y ago
  > housing cost and health insurance aren't counted in inflation. Generally, that's simply not true. There are infinite different measures of inflation and it's up to the synthesizer of the inflation metric to include or exclude things, but generally housing and medical care are part of the equation.
vanderZwan 8y ago
I am not an economist, so anyone more familiar with this please educate me on this matter, but surely a single number like inflation can't capture difficult issues like rent going up very quickly, or any other issue that basically affects specific subsections of society disproportionately? (and I'm not even mentioning the issue of housing shortage) EDIT: I probably should have used "express" rather than "capture", apologies.
- apexalpha 8y ago
  Rising rent will absolutely be in the inflation number. Sure, it might not be correct if you live in a big city where rents have risen way beyond inflation numbers, but it's good on average. Every European capital / big city has seen absolutely massive increases in rent and house prises since the ECB started printing money. (Housing sector if very 'close' to the banking sector and so more directly affected by the availability of cheap credit). Not causes by the ECB 100%, but accelerated by it nonetheless. But if the cost of all other goods has stayed the same, plus the rent and house prises in rural areas has been normal or even dropped, inflation on average will be ok. (And then the ECB says: inflation is less than 2% _on average_ so no problem here. print. print.. print...)
  - pg314 8y ago
    > Every European capital / big city has seen absolutely massive increases in rent and house prises since the ECB started printing money. For Brussels at least, that is simply not true. See the graph in section 'Brussels Hoofdstedelijk Gewest' of [1] for the evolution of real estate prices in the Brussels region since 2008. There are also strict rent controls in Belgium: if you are renting your landlord can increase the rent with inflation, but not more. Every three years the landlord can theoretically increase the price, if he has made improvements to the property or he can prove that the rental value has objectively increased by more than 20% (which is hard, if there are disputes courts tend to side with tenants). [1] https://statbel.fgov.be/nl/themas/bouwen-wonen/vastgoedprijzen#news https://statbel.fgov.be/nl/themas/bouwen-wonen/vastgoedprijz...
  - mistermann 8y ago
kgwgk 8y ago
Note as well that the increase in pay for the average individual will be higher than the average increase. Older, better-payed people are exiting the workforce while younger, less-well-paid people enter the system.
sonnyblarney 8y ago
"inflation" is not "cost of living" really. Cost of living is a variety of factors, moreover, inflation tends to not include housing and fuel. Though there are many measure of inflation ...
- criddell 8y ago
  Why doesn't inflation include housing and fuel?
  - billysielu 8y ago
    to make the number smaller, so they can pay you less
  - sonnyblarney 8y ago
    There are various ways to do inflation, most governments release a variety of measures. Fuel is not included sometimes because of it's inherent volatility, it jams the numbers up and does not give a clear picture. Housing - I think they might include rent but not mortgages as the later reflects consumption over times other than for when inflation is calculated.
  - mercutio2 8y ago
    I’m not sure why housing and fuel were juxtaposed; most “core” inflation indexes I’m familiar with remove fuel and FOOD, because the short term volatility for those two are very high. [A national estimate of] housing generally is included. I don’t agree with the root poster of this thread, though, because real wages are generally indexed to national consumption, whereas housing specifically (and to a lesser extent, food and services) are local markets, so you can have real wage growth but if you live in a high COL area, you really do have to look at real income and deflate (slightly! People often do COL deflation on gross salary, which is silly) for COL.
dghughes 8y ago
>Please reserve comment about the "cost of living" or inflation, as those are (technically) accounted for in this number. But all of them or missing some? In Canada there are various inflation calculators: CPI, CPIX, SHS, MEANSTD, CPIW, price-level targeting, all including or excluding various things like gasoline, transit, mortgages, some taxes, tobacco.
- nabla9 8y ago
  In the US BLS headline CPI is used, I think. >all including or excluding various things like gasoline, transit, mortgages, some taxes, tobacco. You can critique inflation measures, but there is good critique and bad critique. Including some items can introduce unnecessary noise or make the measurement less accurate over long term. Some prices can be safely left out from the price basket because their prices are know to get into the index indirectly. In US CPI used to overestimate inflation mostly because slow adjustments. CPI is modified to correct to this. Most developed nations use good modern CPI measures that take into account things like product substitution etc.
  - dghughes 8y ago
    My rule of thumb is whatever makes my wallet smaller is what concerns me. So whichever inflation index includes that is the one I would use.
mysterypie 8y ago
> "Real pay" means nominal pay adjusted for inflation. So if pay went up by 3%, and inflation was 2%, you'd get something like a 1% "real" pay increase. Wow, if you're right about the meaning of "real pay" (and I do think you're correct[1]), then The Economist is being pretty dishonest in their reporting by not explaining that important point. It makes a huge difference in how anyone interprets the story. How many people reading The Economist are actually economists? I for one assumed that The Economist was saying that people on average are massively worse off since 2000 -- which is the obvious conclusion if (nominal) pay increased 1% a year but inflation was 2-3% a year. [1] https://en.wikipedia.org/wiki/Real_versus_nominal_value_(economics) https://en.wikipedia.org/wiki/Real_versus_nominal_value_(eco... EDIT: I'd like to mention that "real" meaning "adjusted for inflation" is easily misinterpreted when used in normal English sentences. The article says, "In most rich countries, real pay has grown by at most 1% per year." That sounds a lot like, "In most rich countries, your actual paycheck has grown by at most 1% per year." Or, "In most rich countries, the pay you get after taxes has grown by at most 1% per year." Or other senses in which "real" has a normal English meaning rather than "adjusted for inflation".
- Brakenshire 8y ago
  'Real pay' is a very well established term, The Economist will assume that its audience understands that kind of jargon. It's really not at all dishonest.
- pjc50 8y ago
  The Economist writes for an audience which is assumed to know these things, or at least be able to look them up. Just as the average HN article is not expected to explain what React is.
- emodendroket 8y ago
  Should they also explain the bicameral structure of the US legislature in every article about Congress?
- Consultant32452 8y ago
  The economist isn't being dishonest, "real pay" is a very widely used way of saying "adjusted for inflation."
erikb 8y ago
I don't think cost of living is accounted in relation. For instance most wealthy people live in houses. Costs for that have risen, but "value" has risen too. At the same time rents have risen as well, additionally to the utility costs etc. So for the rich this point might be net zero or small loss, while for the poor it's a double loss. The same applies to food. If you can afford eating in a restuarant for $20+ twice a day, you probably haven't seen any significant prise rises. But if you have trouble not spending more than $100 to feed four mouths a week, you probably a big decline in quality of your food since 2000. E.g. this requirement is hard to come by when you try to include fresh fruits. Thus I'd say it's still an important point to consider.
- jhall1468 8y ago
  Food is included in the CPI calculation, as is rent. Mortgages are not as they are an investment vehicle rather than an expense.
  - IanCal 8y ago
    I think their point is that CPI calculations use a single basket of goods for 'everyone' while in reality different people So their example was that if restaurant food hasn't increased in price by much, but basic groceries have then the 'inflation' seen by different groups may be very different. Another example may be that if average housing costs increase just a bit, but the lowest rents have increased the most then cost of living changes could be significantly different between mid and low income families. I'm not saying either of those examples accurately reflect how things are changing in the US (as I don't have the data to hand), but they are realistic scenarios.
    - xapata 8y ago
      For most goods, it's the opposite -- over the last decades, luxury goods have inflated faster than staples. Similarly, real incomes have increased faster for higher incomes. At least, that's what the last paper I read on the topic said, which was published about 8 years ago.
  - 8y ago
dustingetz 8y ago
Macro voices (the best macro podcast in the world right now) recent guest mentioned in passing that inflation would be a lot higher if measured differently implying that the 2% number has been gamed. (Goodhart's law: "When a measure becomes a target, it ceases to be a good measure")
a_136_chiffa 8y ago
Not really - the inflation is currently reported on a "reference consumer basket", which doesn't really represent different segments of society. In other terms, if you are spending on health care of education you are in a really bad place - prices for those services have risen at about 8x the inflation rate over the last 40 years. IF you are purchasing or building a house you will face prices 3x inflation price. However, if you are mostly buying electronics and software, the prices have actually fallen by about 50-80% over the same period.

by piker 8y ago

Brakenshire 8y ago

Yes, although it's always worth asking what measure of inflation is being used. Whoever makes the statistic usually picks the measure most favourable to their point, the most common wheeze is not including housing costs where they should be included.

stdbrouw 8y ago
I agree that housing costs should be included in some way, but this is hard to do correctly because – at least if you buy – housing is an investment good, not an expense. In the US the bureau of labor tries to calculate the "owners' equivalent rent"; the EU on the other hand considers the cost of housing and inflation to be strictly separate measures. Rents are generally included, though.
- humanrebar 8y ago
  > ...housing is an investment good... Only if you realize the appreciation somehow.
  - maccard 8y ago
    You realize it by default at the end of a mortgage when you're not paying it anymore.
    - howard941 8y ago
      Or you don't because you literally default on the mortgage. Or perhaps you rent and it's really hard to consider housing an investment. It's more like some hybrid of necessary living expense optionally coupled to a consumer investment not amenable to being written off as a tax loss.
- IkmoIkmo 8y ago
  That's true at the EU level for the inflation measure of the European Central Bank. But national governments tend to have their own (modified) versions of the HCIP which do include things like owner-equivalent rent or mortgage rates. Not trying to argue semantics here, your point is completely correct but it may be confusing to say 'the EU (as if, as a whole) considers housing and inflation as separate measures'.

lotsofpulp 8y ago

Technically correct, but there are huge regional differences for real wage increase and cost increases in many countries, so what people experience is different than what a national statistic confers.

api 8y ago
I'm of the opinion that economic statistics become almost worthless from the perspective of politics and policy once you get to a certain sample size. A cost of living statistic that averages out cost of living between say Michigan and coastal California is quite wrong in both places. It will grossly underestimate cost of living in California and overestimate it in Michigan. I think this is one of the major problems with politics and economic policy setting at the national and global level. National and global leaders look at big aggregate statistics, which completely blinds them to the street level realities everywhere except those places that happen to coincide with the statistical median. Most places do not coincide with the statistical median. I think this largely explains the recent global populist uprising as well as the fact that global leaders were surprised by it. Large scale macro statistics might be useful for setting things like Fed interest rates, but they're nearly worthless for addressing local problems.
- anoncoward111 8y ago
  This is exactly correct. Additionally, qualitative data needs to be factored into policy decisions as well. If a city looks and feels unsafe, dirty, deserted, and so on, then it probably is those things. No amount of statistics can explain away the experience of any unbiased, reasonable observer. Park your car in the center of town somewhere. Hang out and eat a sandwich with your windows open in your car. See who walks by, hear the noises, the beeps, the sirens, the shouting kids or quiet wind. Then you'll know what a town is really like.
  - IkmoIkmo 8y ago
    Not sure I agree there. There are plenty of historical examples of people seeing things in bizarre ways that simply weren't true. We see this recently with crime statistics dropping across the board, terrorism being less dangerous than bees, and people feeling less safe than ever. I'd say plenty of people aren't fully aware of ways in which their lives get cheaper or better. That's just 'normal'. Whereas growing up and paying $2 for a coffee, and now 15 years later it's $3, is just a sign of you getting squeezed, and people are very much aware of that. One cognitive / measurement issue here is hedonic inflation. For example, the average new home was 1000 square feet in the 20th century and 2500 square feet today. Meanwhile, average household sizes decreased. We all got bigger houses with fewer people to share them with. We also got universal central heating, hot piped water, flush toilets. Similarly, our computers have gotten faster. I don't need to explain the implications of moore's law to anyone here. Suppose the average $1000 computer gets twice as fast previous year. Is that to be measured as inflation or no change? No change? Perhaps, average prices remained constant. But inflation is, among other things, a purchasing power kind of metric. 'How much computing power can I purchase with this money'. In that sense, prices halved. In short, there was deflation, on a hedonic basis. This is something a lot of people don't realise. Inflation figures are sometimes suppressed by such improvements (which halved computing prices, even if sticker prices didn't change). Homes got more than twice as big, computers a thousand times as fast, these things can't simply be ignored by stating 'average homes and computers are more expensive', which is the reality that people experience in real life when looking at sticker prices of computers and rental properties. The reality that people often omit is that the product itself has massively improved. Same with healthcare. Yes, costs increased. So did outcomes. Try surviving cancer today vs 50 years ago. Try living till 80 years old on average, 50 years ago, when life expectancy was sub 70. https://ourworldindata.org/grapher/life-expectancy?tab=chart&country=USA https://ourworldindata.org/grapher/life-expectancy?tab=chart...

galieos_ghost 8y ago

housing cost, health insurance, and college tuition aren't counted in inflation. Economists and politicians can lie all they want but there's a reason people are angry enough to vote Trump or Bernie Sanders and it's because they can tell their standard of living is dropping. Don't piss on my boot and tell me it's raining If the establishment was doing it's job people wouldn't vote anti-establishment.

sshagent 8y ago
Indeed. My rent has gone up in 50% from 5 years, 100% total from 10 years ago. My salary is up just 20% over that 10 years and still well below what i was rocking pre 2008.
IkmoIkmo 8y ago
> housing cost and health insurance aren't counted in inflation. Generally, that's simply not true. There are infinite different measures of inflation and it's up to the synthesizer of the inflation metric to include or exclude things, but generally housing and medical care are part of the equation.

vanderZwan 8y ago

I am not an economist, so anyone more familiar with this please educate me on this matter, but surely a single number like inflation can't capture difficult issues like rent going up very quickly, or any other issue that basically affects specific subsections of society disproportionately? (and I'm not even mentioning the issue of housing shortage) EDIT: I probably should have used "express" rather than "capture", apologies.

apexalpha 8y ago
Rising rent will absolutely be in the inflation number. Sure, it might not be correct if you live in a big city where rents have risen way beyond inflation numbers, but it's good on average. Every European capital / big city has seen absolutely massive increases in rent and house prises since the ECB started printing money. (Housing sector if very 'close' to the banking sector and so more directly affected by the availability of cheap credit). Not causes by the ECB 100%, but accelerated by it nonetheless. But if the cost of all other goods has stayed the same, plus the rent and house prises in rural areas has been normal or even dropped, inflation on average will be ok. (And then the ECB says: inflation is less than 2% _on average_ so no problem here. print. print.. print...)
- pg314 8y ago
  > Every European capital / big city has seen absolutely massive increases in rent and house prises since the ECB started printing money. For Brussels at least, that is simply not true. See the graph in section 'Brussels Hoofdstedelijk Gewest' of [1] for the evolution of real estate prices in the Brussels region since 2008. There are also strict rent controls in Belgium: if you are renting your landlord can increase the rent with inflation, but not more. Every three years the landlord can theoretically increase the price, if he has made improvements to the property or he can prove that the rental value has objectively increased by more than 20% (which is hard, if there are disputes courts tend to side with tenants). [1] https://statbel.fgov.be/nl/themas/bouwen-wonen/vastgoedprijzen#news https://statbel.fgov.be/nl/themas/bouwen-wonen/vastgoedprijz...
- mistermann 8y ago

kgwgk 8y ago

Note as well that the increase in pay for the average individual will be higher than the average increase. Older, better-payed people are exiting the workforce while younger, less-well-paid people enter the system.

sonnyblarney 8y ago

"inflation" is not "cost of living" really. Cost of living is a variety of factors, moreover, inflation tends to not include housing and fuel. Though there are many measure of inflation ...

criddell 8y ago
Why doesn't inflation include housing and fuel?
- billysielu 8y ago
  to make the number smaller, so they can pay you less
- sonnyblarney 8y ago
  There are various ways to do inflation, most governments release a variety of measures. Fuel is not included sometimes because of it's inherent volatility, it jams the numbers up and does not give a clear picture. Housing - I think they might include rent but not mortgages as the later reflects consumption over times other than for when inflation is calculated.
- mercutio2 8y ago
  I’m not sure why housing and fuel were juxtaposed; most “core” inflation indexes I’m familiar with remove fuel and FOOD, because the short term volatility for those two are very high. [A national estimate of] housing generally is included. I don’t agree with the root poster of this thread, though, because real wages are generally indexed to national consumption, whereas housing specifically (and to a lesser extent, food and services) are local markets, so you can have real wage growth but if you live in a high COL area, you really do have to look at real income and deflate (slightly! People often do COL deflation on gross salary, which is silly) for COL.

dghughes 8y ago

>Please reserve comment about the "cost of living" or inflation, as those are (technically) accounted for in this number. But all of them or missing some? In Canada there are various inflation calculators: CPI, CPIX, SHS, MEANSTD, CPIW, price-level targeting, all including or excluding various things like gasoline, transit, mortgages, some taxes, tobacco.

nabla9 8y ago
In the US BLS headline CPI is used, I think. >all including or excluding various things like gasoline, transit, mortgages, some taxes, tobacco. You can critique inflation measures, but there is good critique and bad critique. Including some items can introduce unnecessary noise or make the measurement less accurate over long term. Some prices can be safely left out from the price basket because their prices are know to get into the index indirectly. In US CPI used to overestimate inflation mostly because slow adjustments. CPI is modified to correct to this. Most developed nations use good modern CPI measures that take into account things like product substitution etc.
- dghughes 8y ago
  My rule of thumb is whatever makes my wallet smaller is what concerns me. So whichever inflation index includes that is the one I would use.

mysterypie 8y ago

> "Real pay" means nominal pay adjusted for inflation. So if pay went up by 3%, and inflation was 2%, you'd get something like a 1% "real" pay increase. Wow, if you're right about the meaning of "real pay" (and I do think you're correct[1]), then The Economist is being pretty dishonest in their reporting by not explaining that important point. It makes a huge difference in how anyone interprets the story. How many people reading The Economist are actually economists? I for one assumed that The Economist was saying that people on average are massively worse off since 2000 -- which is the obvious conclusion if (nominal) pay increased 1% a year but inflation was 2-3% a year. [1] https://en.wikipedia.org/wiki/Real_versus_nominal_value_(economics) https://en.wikipedia.org/wiki/Real_versus_nominal_value_(eco... EDIT: I'd like to mention that "real" meaning "adjusted for inflation" is easily misinterpreted when used in normal English sentences. The article says, "In most rich countries, real pay has grown by at most 1% per year." That sounds a lot like, "In most rich countries, your actual paycheck has grown by at most 1% per year." Or, "In most rich countries, the pay you get after taxes has grown by at most 1% per year." Or other senses in which "real" has a normal English meaning rather than "adjusted for inflation".

Brakenshire 8y ago
'Real pay' is a very well established term, The Economist will assume that its audience understands that kind of jargon. It's really not at all dishonest.
pjc50 8y ago
The Economist writes for an audience which is assumed to know these things, or at least be able to look them up. Just as the average HN article is not expected to explain what React is.
emodendroket 8y ago
Should they also explain the bicameral structure of the US legislature in every article about Congress?
Consultant32452 8y ago
The economist isn't being dishonest, "real pay" is a very widely used way of saying "adjusted for inflation."

erikb 8y ago

I don't think cost of living is accounted in relation. For instance most wealthy people live in houses. Costs for that have risen, but "value" has risen too. At the same time rents have risen as well, additionally to the utility costs etc. So for the rich this point might be net zero or small loss, while for the poor it's a double loss. The same applies to food. If you can afford eating in a restuarant for $20+ twice a day, you probably haven't seen any significant prise rises. But if you have trouble not spending more than $100 to feed four mouths a week, you probably a big decline in quality of your food since 2000. E.g. this requirement is hard to come by when you try to include fresh fruits. Thus I'd say it's still an important point to consider.

jhall1468 8y ago
Food is included in the CPI calculation, as is rent. Mortgages are not as they are an investment vehicle rather than an expense.
- IanCal 8y ago
  I think their point is that CPI calculations use a single basket of goods for 'everyone' while in reality different people So their example was that if restaurant food hasn't increased in price by much, but basic groceries have then the 'inflation' seen by different groups may be very different. Another example may be that if average housing costs increase just a bit, but the lowest rents have increased the most then cost of living changes could be significantly different between mid and low income families. I'm not saying either of those examples accurately reflect how things are changing in the US (as I don't have the data to hand), but they are realistic scenarios.
  - xapata 8y ago
    For most goods, it's the opposite -- over the last decades, luxury goods have inflated faster than staples. Similarly, real incomes have increased faster for higher incomes. At least, that's what the last paper I read on the topic said, which was published about 8 years ago.
- 8y ago

dustingetz 8y ago

Macro voices (the best macro podcast in the world right now) recent guest mentioned in passing that inflation would be a lot higher if measured differently implying that the 2% number has been gamed. (Goodhart's law: "When a measure becomes a target, it ceases to be a good measure")

a_136_chiffa 8y ago

Not really - the inflation is currently reported on a "reference consumer basket", which doesn't really represent different segments of society. In other terms, if you are spending on health care of education you are in a really bad place - prices for those services have risen at about 8x the inflation rate over the last 40 years. IF you are purchasing or building a house you will face prices 3x inflation price. However, if you are mostly buying electronics and software, the prices have actually fallen by about 50-80% over the same period.