7 ms·

Lifetime: http://www.thebillionpricesproject.com/wp-content/uploads/2017/04/data-priceindices.jpg http://www.thebillionpricesproject.com/wp-content/uploads/20..

Lifetime: http://www.thebillionpricesproject.com/wp-content/uploads/2017/04/data-priceindices.jpg http://www.thebillionpricesproject.com/wp-content/uploads/20... Squinting at the graph, for 2008=100, in 2016 CPI was ~108 and BPP was ~109. (Couldn't find a newer graph with a quick look.)

Retric 6y ago
+8% vs +9% is a 12% divergence is just 8 years, and the numbers where even further apart in 2014. So, it looks like they are very different models.
- alexmingoia 6y ago
  The dollar has lost more than 90% of its value in just 50 years. The point is the BPP is proof there is no nefarious conspiracy to manipulate CPI to hide “true” inflation. Amongst the gold-bug hyperinflationist crowd there is a commonly held belief that inflation is much higher than CPI or that CPI is manipulated to hide inflation. The fact that a simple model scraping a few online retailers results in nearly the same annual percentage change demonstrates that this conspiracy theory is a myth.
  - rdtwo 6y ago
    CPI is probably near CPI the problem is that CPI does not actually measure inflation felt by the average American. The basket of goods is not reflective of actual allocation. Because of that the CPI value is significant lower than actual inflation
  - antb123 6y ago
    Essentially inflation is a political measurement that drives policy decisions and that is cause for a lot of concern. The current inflationary model is mostly driven by salaries. Thus in the 70s unions drove up inflation due to oil shocks. The concern for me is that models do not include asset inflation for goods (housing) that most people would like to own and where there is little productivity improvement. Using an equivalent rent model ignores this preference.
    - alexmingoia 6y ago
      CPI measures annual change in the price of goods consumed. A house is not consumed within anywhere near a year, and also has expenses. The parties in a housing sale may not be consuming the house at all, but treating it as an investment and renting it out. Stocks, investments, etc. aren’t consumables so they aren’t included either. Rent is the price of housing consumption.
    - rdtwo 6y ago
      They do include price increase of Housing in owner equivalent rent but there are other issues with this adjustment. Also once again basket allocation is lower than it should be for rent.
      - MagnumOpus 6y ago
        > once again basket allocation is lower than it should be for rent No, rent and owner's equivalent rent make up a quarter of the inflation basket - just in exact proportion to their share of aggregate consumption expenditure in the US. The San Francisco tech bro who spends 70% of his take-home on rent is not representative of the US population at large...
        rdtwo 6y ago
        But it fails to account for property taxes which in many areas have increased dramatically.
        eru 6y ago
        If only! Property taxes are close to free of deadweight losses. (Only the proportion of property taxes that falls on the buildings etc causes deadweight losses. The proportion that falls on the value of the land is free of deadweight losses. See Land Value Taxes.)
  - taurath 6y ago
    I think they’d say that inflation is in assets, not consumer goods, which to me rings a lot more true. It’s also true that for the average person on average wage housing has become greatly less affordable in the last 50 years but that’s because income hasn’t kept up.
    - alexmingoia 6y ago
      I don’t think the price of home sales is a good measure of housing affordability. Here’s a graph from Zillow which does not show a huge increase in last 30 years: http://www.doctorhousingbubble.com/wp-content/uploads/2016/07/mortgage-and-rent-affordability.png http://www.doctorhousingbubble.com/wp-content/uploads/2016/0... According to the American Housing Survey, housing as a percentage of income only increased from 19 to 22% from 1985 to 2005. Overall, wages have exceeded or kept pace with inflation since 1979: https://www.politifact.com/factchecks/2019/jan/30/kamala-harris/are-paychecks-failing-keep-inflation/ https://www.politifact.com/factchecks/2019/jan/30/kamala-har...
      - Retric 6y ago
        Averages ignore the growing income inequality. From 1979 - 2018 incomes for 90% of the population is up 23.9%. 90-95% up 45.7%, 95-99% up 71.3%. Top 1% is up 157.8%. https://www.epi.org/blog/top-1-0-of-earners-see-wages-up-157-8-since-1979/ https://www.epi.org/blog/top-1-0-of-earners-see-wages-up-157... So chop off the top 10% and numbers are going to look very different. From housing to CPI it’s tricky to adjust for such things to understand how most of the population is doing.
      - taurath 6y ago
        In that time homeownership has gone down - those BUYING houses spend less of their income on it, but that’s a smaller and smaller piece.
rdtwo 6y ago
That’s because the inflation is mostly hidden in hedonic adjustments and improper basket allocation. You need only to look at the basket fraction that is housing and healthcare to see that inflation is being covered up as it’s too small a piece of the pie. Look at the price of a truck if you want to see hedonic adjustment in action covering up price increases.
- MagnumOpus 6y ago
  CPI does not cover either house prices (it covers rents, and imputed rends for home owners) or employer-paid/government-paid healthcare (it covers out-of-pocket expenses and add-on insurance only). If you are interested in house prices, look for the Case/Shiller phouse price index, if you are interested in health care costs, look for the PPI components of drugs, hospital services, medical devices etc. To counter your implied assertion - no, CPI is not being manipulated, but house price/CPI ratio has risen because mortgage rates are low, and medical care costs as a whole have risen mainly because of (a) proportionately more fat and old people, (b) agency problems in the health insurance model (overprescription/overtreatment out of defensiveness even if it is not cost effective).
  - rdtwo 6y ago
    So CPI is not being manipulated just cost of living has risen and it’s not reflected in CPI. That’s silly. The CPI index basically picks and chooses which values to adjust and which to fix in order to get a desired outcome. It’s not a robust process there is a ton room to nudge numbers one way or another depending on if you want to show inflation or not. Think of it more like an accountant working towards whatever profit number the company wants to report this year. Generally the government can’t Show high inflation because doing so would have all sorts of second and third order consequences like increased SSI payout and higher government salaries as well as affect contracts and treasury bond yields. The entire market would crash if you got a 3-5% hot inflation number. That basically can’t be allowed

Retric 6y ago

+8% vs +9% is a 12% divergence is just 8 years, and the numbers where even further apart in 2014. So, it looks like they are very different models.

alexmingoia 6y ago
The dollar has lost more than 90% of its value in just 50 years. The point is the BPP is proof there is no nefarious conspiracy to manipulate CPI to hide “true” inflation. Amongst the gold-bug hyperinflationist crowd there is a commonly held belief that inflation is much higher than CPI or that CPI is manipulated to hide inflation. The fact that a simple model scraping a few online retailers results in nearly the same annual percentage change demonstrates that this conspiracy theory is a myth.
- rdtwo 6y ago
  CPI is probably near CPI the problem is that CPI does not actually measure inflation felt by the average American. The basket of goods is not reflective of actual allocation. Because of that the CPI value is significant lower than actual inflation
- antb123 6y ago
  Essentially inflation is a political measurement that drives policy decisions and that is cause for a lot of concern. The current inflationary model is mostly driven by salaries. Thus in the 70s unions drove up inflation due to oil shocks. The concern for me is that models do not include asset inflation for goods (housing) that most people would like to own and where there is little productivity improvement. Using an equivalent rent model ignores this preference.
  - alexmingoia 6y ago
    CPI measures annual change in the price of goods consumed. A house is not consumed within anywhere near a year, and also has expenses. The parties in a housing sale may not be consuming the house at all, but treating it as an investment and renting it out. Stocks, investments, etc. aren’t consumables so they aren’t included either. Rent is the price of housing consumption.
  - rdtwo 6y ago
    They do include price increase of Housing in owner equivalent rent but there are other issues with this adjustment. Also once again basket allocation is lower than it should be for rent.
    - MagnumOpus 6y ago
      > once again basket allocation is lower than it should be for rent No, rent and owner's equivalent rent make up a quarter of the inflation basket - just in exact proportion to their share of aggregate consumption expenditure in the US. The San Francisco tech bro who spends 70% of his take-home on rent is not representative of the US population at large...
      - rdtwo 6y ago
        But it fails to account for property taxes which in many areas have increased dramatically.
        eru 6y ago
        If only! Property taxes are close to free of deadweight losses. (Only the proportion of property taxes that falls on the buildings etc causes deadweight losses. The proportion that falls on the value of the land is free of deadweight losses. See Land Value Taxes.)
- taurath 6y ago
  I think they’d say that inflation is in assets, not consumer goods, which to me rings a lot more true. It’s also true that for the average person on average wage housing has become greatly less affordable in the last 50 years but that’s because income hasn’t kept up.
  - alexmingoia 6y ago
    I don’t think the price of home sales is a good measure of housing affordability. Here’s a graph from Zillow which does not show a huge increase in last 30 years: http://www.doctorhousingbubble.com/wp-content/uploads/2016/07/mortgage-and-rent-affordability.png http://www.doctorhousingbubble.com/wp-content/uploads/2016/0... According to the American Housing Survey, housing as a percentage of income only increased from 19 to 22% from 1985 to 2005. Overall, wages have exceeded or kept pace with inflation since 1979: https://www.politifact.com/factchecks/2019/jan/30/kamala-harris/are-paychecks-failing-keep-inflation/ https://www.politifact.com/factchecks/2019/jan/30/kamala-har...
    - Retric 6y ago
      Averages ignore the growing income inequality. From 1979 - 2018 incomes for 90% of the population is up 23.9%. 90-95% up 45.7%, 95-99% up 71.3%. Top 1% is up 157.8%. https://www.epi.org/blog/top-1-0-of-earners-see-wages-up-157-8-since-1979/ https://www.epi.org/blog/top-1-0-of-earners-see-wages-up-157... So chop off the top 10% and numbers are going to look very different. From housing to CPI it’s tricky to adjust for such things to understand how most of the population is doing.
    - taurath 6y ago
      In that time homeownership has gone down - those BUYING houses spend less of their income on it, but that’s a smaller and smaller piece.

rdtwo 6y ago

That’s because the inflation is mostly hidden in hedonic adjustments and improper basket allocation. You need only to look at the basket fraction that is housing and healthcare to see that inflation is being covered up as it’s too small a piece of the pie. Look at the price of a truck if you want to see hedonic adjustment in action covering up price increases.

MagnumOpus 6y ago
CPI does not cover either house prices (it covers rents, and imputed rends for home owners) or employer-paid/government-paid healthcare (it covers out-of-pocket expenses and add-on insurance only). If you are interested in house prices, look for the Case/Shiller phouse price index, if you are interested in health care costs, look for the PPI components of drugs, hospital services, medical devices etc. To counter your implied assertion - no, CPI is not being manipulated, but house price/CPI ratio has risen because mortgage rates are low, and medical care costs as a whole have risen mainly because of (a) proportionately more fat and old people, (b) agency problems in the health insurance model (overprescription/overtreatment out of defensiveness even if it is not cost effective).
- rdtwo 6y ago
  So CPI is not being manipulated just cost of living has risen and it’s not reflected in CPI. That’s silly. The CPI index basically picks and chooses which values to adjust and which to fix in order to get a desired outcome. It’s not a robust process there is a ton room to nudge numbers one way or another depending on if you want to show inflation or not. Think of it more like an accountant working towards whatever profit number the company wants to report this year. Generally the government can’t Show high inflation because doing so would have all sorts of second and third order consequences like increased SSI payout and higher government salaries as well as affect contracts and treasury bond yields. The entire market would crash if you got a 3-5% hot inflation number. That basically can’t be allowed