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Why don’t more people talk about this? The CPI is clearly broken. I’ve seen things stay the same price but get smaller in shrinkflation. Housing/rent prices go

Why don’t more people talk about this? The CPI is clearly broken. I’ve seen things stay the same price but get smaller in shrinkflation. Housing/rent prices go up 20% in a year but CPI barely budges. Do they just find 20% smaller houses every year? Just fixing the index would have a huge impact

ahelwer 6y ago
Housing (and healthcare and education) will never be included in US inflation metrics because the inflation of those cost categories is a government priority. In particular the US gov wants homeowners to experience a consistent annual return on their investment, aka it wants housing to inflate. The CPI hides these issues and enables them to lie by omission, why would they change it?
- mywittyname 6y ago
  You're attitude doesn't make sense when put into the context that housing inflation, as a whole, tracks inflation. It's only pockets of the country which experience high rates of housing inflation. Even if you did include it, the numbers wouldn't change. For every Seattle or Denver experiencing heavy growth in the housing markets, there's a dozen Lafayettes experiencing slow/no growth.
  - ahelwer 6y ago
    Okay, so weight the costs by how many people experience them then. Oh! More people live in those big cities? Huh. And those cities are the only places with jobs that have experienced decent wage growth? Man.
adjkant 6y ago
I've found that most people in the economics space know how broken the CPI is, so it's boring. That's why no one talks about it. The reality is the CPI doesn't affect as much as people think, so there's little pressure to force its needed changes. And if you do ask people to change it, the factions that split in terms of what changes are desired leaves the "keep it the same" camp being the largest. At a personal level, the CPI really isn't set up for cities. It is simply not considered in the CPI that housing would be such a big cost that would outweigh anything else. The "why" seems to be speculated by another poster, though I can't speak to that as I'm not deep enough into economics.
jonfw 6y ago
> Do they just find 20% smaller houses every year? Just fixing the index would have a huge impact The opposite, people are in significantly larger and better equipped houses than they used to be. I also think 20% is pretty steep outside of the most desirable areas in the US, which are akin to complaining about the pricing becoming unreasonable in your country club. The top end of the market shouldn't be used to track inflation, we should use the median.
mywittyname 6y ago
Like most things, there are trade-offs involved. Including X & Y may greatly skew the results higher or lower, but if the percentage of people purchasing X & Y are low, then they don't have much impact. The CPI methodology isn't great, but it also isn't bad. Removing volatile sectors makes sense when trying to identify trends, but it doesn't make sense when those volatile sectors are a large component of consumer spend. Since most of the data used by the CPI calculator is publicly available, it is possible for people to construct their own CPI metric and track it over time. This is helpful if you want to get an accurate indicator of the inflation you've experienced over time, or if you're wanting to push the narrative of higher/lower inflation over a period of time.
- lotsofpulp 6y ago
  > The CPI methodology isn't great, but it also isn't bad. It’s bad for any discussion involving wages since your earnings need to go up by more than CPI to tread water, in popular areas.
  - Rebelgecko 6y ago
    Wouldn't you expect roughly 50% of areas (population weighted I guess) to be "above average"?
    - lotsofpulp 6y ago
      Yes, but with widening income/wealth gaps, I would expect the popular areas to have a larger deviation from the mean.
deleted 6y ago
[deleted]
albertop 6y ago
The greater (lower) the degree of government involvement in the provision of a good or service the greater (lower) the price increases (decreases) over time, e.g., hospital and medical costs, college tuition, childcare with both large degrees of government funding/regulation and large price increases vs. software, electronics, toys, cars and clothing with both relatively less government funding/regulation and falling prices. https://www.aei.org/carpe-diem/chart-of-the-day-or-century-5/ https://www.aei.org/carpe-diem/chart-of-the-day-or-century-5...
rayiner 6y ago
Let’s talk about housing. The median mortgage payment has been unchanged for decades, even though the median house is getting larger: https://images.app.goo.gl/5EpQSVaD12FvjK1XA https://images.app.goo.gl/5EpQSVaD12FvjK1XA. https://images.app.goo.gl/7ks5ssgZCWpu2Xf68 https://images.app.goo.gl/7ks5ssgZCWpu2Xf68 What’s happening with housing is the opposite of shrinkflation. There’s always been more or less desirable neighborhoods. When you see prices skyrocketing in a particular neighborhood, it’s because that neighborhood is moving up market. But house prices across the country as a whole aren’t going up. It’s just that Mountain View has become what Scarsdale used to be, and the current version of Mountain View—a boring nowhere suburb with housing prices to match—is somewhere in the Kansas City or Dallas suburbs.
- hiram112 6y ago
  Except for the fact that home prices in boring suburbs in Kansas City and Dallas have risen far more than the CPI indicates.

ahelwer 6y ago

Housing (and healthcare and education) will never be included in US inflation metrics because the inflation of those cost categories is a government priority. In particular the US gov wants homeowners to experience a consistent annual return on their investment, aka it wants housing to inflate. The CPI hides these issues and enables them to lie by omission, why would they change it?

mywittyname 6y ago
You're attitude doesn't make sense when put into the context that housing inflation, as a whole, tracks inflation. It's only pockets of the country which experience high rates of housing inflation. Even if you did include it, the numbers wouldn't change. For every Seattle or Denver experiencing heavy growth in the housing markets, there's a dozen Lafayettes experiencing slow/no growth.
- ahelwer 6y ago
  Okay, so weight the costs by how many people experience them then. Oh! More people live in those big cities? Huh. And those cities are the only places with jobs that have experienced decent wage growth? Man.

adjkant 6y ago

I've found that most people in the economics space know how broken the CPI is, so it's boring. That's why no one talks about it. The reality is the CPI doesn't affect as much as people think, so there's little pressure to force its needed changes. And if you do ask people to change it, the factions that split in terms of what changes are desired leaves the "keep it the same" camp being the largest. At a personal level, the CPI really isn't set up for cities. It is simply not considered in the CPI that housing would be such a big cost that would outweigh anything else. The "why" seems to be speculated by another poster, though I can't speak to that as I'm not deep enough into economics.

jonfw 6y ago

> Do they just find 20% smaller houses every year? Just fixing the index would have a huge impact The opposite, people are in significantly larger and better equipped houses than they used to be. I also think 20% is pretty steep outside of the most desirable areas in the US, which are akin to complaining about the pricing becoming unreasonable in your country club. The top end of the market shouldn't be used to track inflation, we should use the median.

mywittyname 6y ago

Like most things, there are trade-offs involved. Including X & Y may greatly skew the results higher or lower, but if the percentage of people purchasing X & Y are low, then they don't have much impact. The CPI methodology isn't great, but it also isn't bad. Removing volatile sectors makes sense when trying to identify trends, but it doesn't make sense when those volatile sectors are a large component of consumer spend. Since most of the data used by the CPI calculator is publicly available, it is possible for people to construct their own CPI metric and track it over time. This is helpful if you want to get an accurate indicator of the inflation you've experienced over time, or if you're wanting to push the narrative of higher/lower inflation over a period of time.

lotsofpulp 6y ago
> The CPI methodology isn't great, but it also isn't bad. It’s bad for any discussion involving wages since your earnings need to go up by more than CPI to tread water, in popular areas.
- Rebelgecko 6y ago
  Wouldn't you expect roughly 50% of areas (population weighted I guess) to be "above average"?
  - lotsofpulp 6y ago
    Yes, but with widening income/wealth gaps, I would expect the popular areas to have a larger deviation from the mean.

deleted 6y ago

[deleted]

albertop 6y ago

The greater (lower) the degree of government involvement in the provision of a good or service the greater (lower) the price increases (decreases) over time, e.g., hospital and medical costs, college tuition, childcare with both large degrees of government funding/regulation and large price increases vs. software, electronics, toys, cars and clothing with both relatively less government funding/regulation and falling prices. https://www.aei.org/carpe-diem/chart-of-the-day-or-century-5/ https://www.aei.org/carpe-diem/chart-of-the-day-or-century-5...

rayiner 6y ago

Let’s talk about housing. The median mortgage payment has been unchanged for decades, even though the median house is getting larger: https://images.app.goo.gl/5EpQSVaD12FvjK1XA https://images.app.goo.gl/5EpQSVaD12FvjK1XA. https://images.app.goo.gl/7ks5ssgZCWpu2Xf68 https://images.app.goo.gl/7ks5ssgZCWpu2Xf68 What’s happening with housing is the opposite of shrinkflation. There’s always been more or less desirable neighborhoods. When you see prices skyrocketing in a particular neighborhood, it’s because that neighborhood is moving up market. But house prices across the country as a whole aren’t going up. It’s just that Mountain View has become what Scarsdale used to be, and the current version of Mountain View—a boring nowhere suburb with housing prices to match—is somewhere in the Kansas City or Dallas suburbs.

hiram112 6y ago
Except for the fact that home prices in boring suburbs in Kansas City and Dallas have risen far more than the CPI indicates.