6 ms·

Does anyone know how inflation was adjusted?

• danenania 16y ago
  Probably with government inflation statistics, which makes the reliability questionable.
  • iwwr 16y ago
    The rate of inflation may be underestimated, but the trend is still a good indicator. You check out the charts at http://www.shadowstats.com/ http://www.shadowstats.com/ . It may be helpful to put together your own "basket of goods" for a more personalized estimate of inflation.
    • yummyfajitas 16y ago
      Actually, inflation is generally overestimated. All CPI numbers up to 1996 are well known to be more than 1% too high. http://en.wikipedia.org/wiki/Boskin_Commission http://en.wikipedia.org/wiki/Boskin_Commission An intuitive way to see this: CPI-adjusted wages have not increased much since the 1970's. Yet in terms of goods and services, we have vastly more than we had in the 70's - I doubt you can name a single good we consume less of than in the 70's (besides perhaps telephone land lines and typewriters). If CPI properly measured inflation, that would not be the case.
      • iwwr 16y ago
        Still, this realization should not be seen as a license by the government to start printing more money. Having a decades long effective deflation, but with economic growth, would also mean that "price stability" can be equivalent with negative price increases.
      • danenania 16y ago
        This could easily be turned around to say that since innovation naturally lowers prices over time, inflation is greatly underestimated. Say that without monetary expansion, prices would decrease 3 percent per year. This would mean that in reality inflation is 3 points higher than its nominal value.
        • nostrademons 16y ago
          That's an odd definition of "inflation" you have, where a quantity that supposedly measures the rate of change in prices is positive even though the rate of change in prices is negative...
          • danenania 16y ago
            Is it really odd to measure relative to the actual natural base rate of inflation, which is negative in a healthy economy, instead of ignoring opportunity cost and arbitrarily assigning zero as the base rate? If an economy's natural rate of inflation would be -3%, but government monetary expansion keeps it at zero, are you just going to pretend there's no inflation?
            • yummyfajitas 16y ago
              You seem to wish that "inflation" was defined as "monetary expansion". It isn't.
              • danenania 16y ago
                Some economists do define it that way, but that wasn't my argument. However, I do see your point if we define inflation as strictly the rise in prices, which certainly is the most common definition. My reasoning was off.
            • deleted 16y ago
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