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One gotcha about how inflation is calculated (at least in Germany, I assume it to be the same in the US), is that they try to compare identical products. So if

One gotcha about how inflation is calculated (at least in Germany, I assume it to be the same in the US), is that they try to compare identical products. So if this years cars do not have air conditioning, but next years cars do, the prices can increase accordingly without showing up as inflation, because you are getting "more car for more money". The problem appears at the point, when there are no cars without air conditioning anymore: You actually have to pay more to get a car, while your inflation statistics still say, prices have not risen.

aetherson 6y ago
This is the same in the US, yes. And it's still the correct thing to do. Inflation can't be a measure of every dimension of economic hardship at once. As the article points out, healthcare has risen in cost dramatically more than most other things. Does that mean that somehow the inflation rate must reflect the pains of those households not in the average and aggregate? Less capable goods may no longer be available. You can no longer purchase a Model T, and must purchase a car that's faster, safer, more comfortable, and more reliable. Even if you don't particularly value that, your car objectively is faster, safer, more comfortable, and more reliable. The inflation rate can't change because your preferences are for a cheaper, but inferior good.
- peteradio 6y ago
  The problem then is that "inflation" should not be used to argue that a large block of people aren't getting the shaft. That seems to be the most common exercise in citing inflation.
- beagle3 6y ago
  But things are indexed to inflation assuming it represent the dynamics of “this is what you need to maintain your current quality of life”.
- rozab 6y ago
  What about improvements linked to mandatory regulations (safety, emissions, efficiency, etc)?
- deleted 6y ago
  [deleted]
dahfizz 6y ago
This is a fundamental problem with inflation calculation. How much would an iPhone be worth in the 1800's? How much would the Federal government have paid for a gigabit internet connection 100 years ago? Considering they spent tens of millions of dollars developing the Arpanet, I would say that the cost of internet has fallen dramatically. Inflation calculations are only meaningful over short time periods. When chained over decades and centuries, we may as well be comparing two foreign currencies and societies.
- darrenf 6y ago
  AIUI, economists measure inflation by comparing prices of a "basket of goods" – the contents of which change over time, specifically to reflect changes in consumer habits, technological progress, and other non-monetary factors. If we can trust or agree that the basket is updated frequently enough with sufficient accuracy at a broad scope, then inflation should indeed be comparable over decades. Here's how the UK defines its basket of goods, and the rules for changing it: https://www.ons.gov.uk/economy/inflationandpriceindices/articles/ukconsumerpriceinflationbasketofgoodsandservices/2020 https://www.ons.gov.uk/economy/inflationandpriceindices/arti...
michaelt 6y ago
I once read an article that claimed official statistics radically over-estimated how healthy US manufacturing was - because the official statistics considered a factory making CPUs with 16MB cache to have 1000x the output of a factory making CPUs with 16kB cache.
hackeraccount 6y ago
See also mandated safety features in cars or Energy Star in appliances. Is it making something better for everyone or creating inflation?

aetherson 6y ago

This is the same in the US, yes. And it's still the correct thing to do. Inflation can't be a measure of every dimension of economic hardship at once. As the article points out, healthcare has risen in cost dramatically more than most other things. Does that mean that somehow the inflation rate must reflect the pains of those households not in the average and aggregate? Less capable goods may no longer be available. You can no longer purchase a Model T, and must purchase a car that's faster, safer, more comfortable, and more reliable. Even if you don't particularly value that, your car objectively is faster, safer, more comfortable, and more reliable. The inflation rate can't change because your preferences are for a cheaper, but inferior good.

peteradio 6y ago
The problem then is that "inflation" should not be used to argue that a large block of people aren't getting the shaft. That seems to be the most common exercise in citing inflation.
beagle3 6y ago
But things are indexed to inflation assuming it represent the dynamics of “this is what you need to maintain your current quality of life”.
rozab 6y ago
What about improvements linked to mandatory regulations (safety, emissions, efficiency, etc)?
deleted 6y ago
[deleted]

dahfizz 6y ago

This is a fundamental problem with inflation calculation. How much would an iPhone be worth in the 1800's? How much would the Federal government have paid for a gigabit internet connection 100 years ago? Considering they spent tens of millions of dollars developing the Arpanet, I would say that the cost of internet has fallen dramatically. Inflation calculations are only meaningful over short time periods. When chained over decades and centuries, we may as well be comparing two foreign currencies and societies.

darrenf 6y ago
AIUI, economists measure inflation by comparing prices of a "basket of goods" – the contents of which change over time, specifically to reflect changes in consumer habits, technological progress, and other non-monetary factors. If we can trust or agree that the basket is updated frequently enough with sufficient accuracy at a broad scope, then inflation should indeed be comparable over decades. Here's how the UK defines its basket of goods, and the rules for changing it: https://www.ons.gov.uk/economy/inflationandpriceindices/articles/ukconsumerpriceinflationbasketofgoodsandservices/2020 https://www.ons.gov.uk/economy/inflationandpriceindices/arti...

michaelt 6y ago

I once read an article that claimed official statistics radically over-estimated how healthy US manufacturing was - because the official statistics considered a factory making CPUs with 16MB cache to have 1000x the output of a factory making CPUs with 16kB cache.

hackeraccount 6y ago

See also mandated safety features in cars or Energy Star in appliances. Is it making something better for everyone or creating inflation?