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> CPI is absurd, it only perpetuates consumerism and punishes savers. Okay okay back up. The consumer price index is a series of numbers designed to help peop

> CPI is absurd, it only perpetuates consumerism and punishes savers. Okay okay back up. The consumer price index is a series of numbers designed to help people understand what dollar-denominated figures mean to ordinary people going about their lives, spending those dollars. If that's "consumerism," well yes, it's a portrait of consumerism. Many economists, mind you, believe CPI doesn't correct quite enough, and suspect that it overstates the inflation it hopes to measure by around 1%. This is because it tracks the actual prices of a certain "market basket" of goods with specific products in it, and that basket gets out of date, as people substitute products. But if someone's "punishing savers" and "perpetuating consumerism", it's not the index, and it's not the people compiling the index, and it's not the people trying to make the index more accurate by adjusting for quality. Assign the blame where it's due. You have a beef with the Federal Reserve, and possibly with other agencies or laws which refer to the CPI to make policy.

whoisninja 6y ago
do you realize all the calculations use CPI? the bond market is highly manipulated because of that, why have a market then? why are retail accounts in germany, netherland already negative rates? does that make sense to you? can banks make money that way? danger of nationalization of banking? personal beef? no. I thought this is a forum for civil discussion and reasoning?
- smachiz 6y ago
  I don't really have a dog in this fight other than to point out your initial post was neither civil nor reasoned - and included not citations or facts. I'm starting to understand what you're insinuating I think, but you still haven't made your point.
  - deleted 6y ago
    [deleted]
- fennecfoxen 6y ago
  > do you realize all the calculations use CPI? Whose calculations? The Federal Reserve's calculations? The Federal Reserve has access to a variety of data sources, and while the CPI is the one that gets the press, they also use series like the chained CPI, the producer price index, bond yield curves, unemployment (and not just U3, but things like U6 and the labor force participation rate). If all you hear about is vanilla CPI, well, that's because you're looking at a newspaper. Anyway, as I said. You have a beef with the Federal Reserve. > why are retail accounts in germany, netherland already negative rates? Public policy, as effected by the European Central Bank. Perhaps you have a beef with them too. > does that make sense to you? I mean, it makes sense as in "I understand why they do it", not as in "I think this is a great thing". > can banks make money that way? I've read that low interest rates do, in fact, squeeze their profits, though with regards to Germany the "three-pillar" system is crufty and weird and squeezes profits too. For instance, here is this lovely article I saw a while back, whose subhead notes "Low interest rates and the three-pillar system squish profits": https://www.economist.com/finance-and-economics/2019/03/02/commerzbank-and-deutsche-bank-would-gain-little-by-merging https://www.economist.com/finance-and-economics/2019/03/02/c... > danger of nationalization of banking? I'm not sure what you're talking about any more. It seems very detached from the Bureau of Labor Statistics, or European equivalent.
  - deleted 6y ago
    [deleted]
  - nostrademons 6y ago
    Does the Fed look at inflation numbers within individual industries and metro regions? Here's what I'm worried about: if you look at historical examples like say the 1970s inflation, or the post-Cold-War Warsaw Pact hyperinflations, or the post WW-2 hyperinflations in many European countries, prices didn't rise uniformly. Some industry or some region would experience very large inflation, and then eventually it would get transmitted to that industry's customers, or their suppliers. It's basically a network contagion, spread across the links in the economy. We're seeing the early stages of this happen right now - that's what the article is about. Powell's public comments are that "inflation doesn't turn on a dime" and "we're likely to see some localized price increases within certain industries, but no generalized inflation." The thing is - I know from history that the former can be false (particularly in wartime, and shifts from a controlled to a market economy, and the recovery from COVID has aspects of both), and the latter tells me that he's looking at the same data that I am but drawing the opposite conclusion. If 5% of firms are experiencing 30% inflation and the rest are experiencing no inflation, the PPI will read 1.5%. If that 30% inflation is in a core industry though (say food, or energy, or labor) and they pass it along to all their customers, then within 1-2 years you could have 30% inflation across the whole economy without passing through the 2% stage. It's giving me COVID tingles from last year, where in March your overall risk of getting COVID in the U.S. was about 1:100,000, but your risk in NYC was 30%. Then suddenly your risk in Phoenix was 40%, and your risk in South Dakota was 50%, and then your risk in LA was 30%, and suddenly about 20% of the country has had it. Poke holes in my reasoning, please.
- mywittyname 6y ago
  The European bond market has little connection to the American CPI. European rates are determined by a complex market of futures and interest rate swaps between various banks and markets. Knowing that, negative interest rates make plenty of sense, because interest rates in Europe are relative to other currencies -- unlike in the US, where interest rates are based in a single currency.
em500 6y ago
There's a ridiculous amount of misconception, FUD, and ignorance around inflation / CPI (it doesn't include housing, it overweights entertainent, it exclude food and energy, hedonic adjustments/basket substitutions make everything look artificially cheap) To professional economists, it can be infuriating to read (I imagine similar as medical professionals reading antivax blogs/comments, or radio engineers reading about dangers of 5G radiation). I had a good intention once, to write layman exposition to clear most of the misconceptions. But much like the calculation of the CPI itself, it's a lot of work and ultimately not very rewarding. An unfortunate fact is that a very large part of the CPI comes from household survey responses. These are too expensive for non-professionals to reproduce and verify independently, so probably no amount of writing can really convince CPI-doubters.
- pwm 6y ago
  I'm not an economist. My layman understanding of inflation is that it is the measure of change of purchasing power a unit of currency has over time. I think most laymen, including myself, questions how this rather theoretical concept is actually measured in real life. Eg. I think it is a sensible expectation that if inflation was said to be 2% for 20 years then I should be able to buy a house that cost $200K 20 years ago for ~$300K now. This expectation is worlds away from reality which then prompts people to question the way inflation is measured. I know you wrote that you don't really have the inclination anymore to educate on the topic but I for one would be grateful for any pointers how to explain the above discrepancy?
  - gruez 6y ago
    >My layman understanding of inflation is that it is the measure of change of purchasing power a unit of currency has over time >I know you wrote that you don't really have the inclination anymore to educate on the topic but I for one would be grateful for any pointers how to explain the above discrepancy? obvious answer: it's not "price index", it's "consumer price index". First paragraph from wikipedia: >A consumer price index measures changes in the price level of a weighted average market basket of consumer goods and services purchased by households.
  - 6y ago
CyberRabbi 6y ago
> But if someone's "punishing savers" and "perpetuating consumerism", it's not the index, and it's not the people compiling the index, and it's not the people trying to make the index more accurate by adjusting for quality. I’ve seen this a lot around the net and I’m honestly and genuinely curious. What drives you to defend the CPI?
- gruez 6y ago
  >What drives you to defend the CPI? What drives you to question the motives of the commenter rather than responding to his arguments directly?
  - bingbong70 6y ago
    He's right, defending the CPI calculation is almost criminal. Many people on fixed incomes that are adjusted based on the CPI are negatively affected. This bogus formula will be conveniently altered to stay under 2% if inflation creeps into the basket of goods being calculated.
    - gruez 6y ago
      >He's right Perhaps, but the right way to approach this is to point out the factual errors, rather than making thinly veiled insinuations that his opponent is a shill for the BLS or whatever. >defending the CPI calculation is almost criminal Ah yes, because the only possible explanation for why people don't hold the same beliefs as you is because they're acting with malice. For this and the previous point I refer you to the site guidelines: https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html, namely: Please don't post insinuations about astroturfing, shilling, brigading, foreign agents and the like. It degrades discussion and is usually mistaken. Assume good faith. >Many people on fixed incomes that are adjusted based on the CPI are negatively affected. This bogus formula will be conveniently altered to stay under 2% if inflation creeps into the basket of goods being calculated. All this does is provide a motive for why CPI might be wrong, but stops short of providing evidence or counter-arguments.
lotsofpulp 6y ago
>The consumer price index is a series of numbers designed to help people understand what dollar-denominated figures mean to ordinary people going about their lives, spending those dollars. It's done an absolutely terrible job for the past 15 years, for my lifestyle and where I live. I suspect it hasn't reflect many other people's budgets either, hence the common argument of official CPI figures being nonsense. I don't even have to look at anything other than the changing health insurance premiums/deductibles/co pays/out of pocket maximums to prove it, not to mention real estate, childcare, taxes, and education. It eviscerates any downward effect tech products and grocery prices might have.
- souprock 6y ago
  My anecdote is as valid as your anecdote. Life got cheaper over the past 15 years, not counting changes in family size. I used to have insurance co-payment, a deduction from my paycheck, and an unreachable out-of-pocket maximum. All of that has changed. I used to pay about $1200 rent for a crummy house in a dangerous neighborhood. Now, with a paid-off mortgage, I pay just $266 for property tax on a house that is 3109 square feet on 0.39 acres. Childcare is my wife, so $0 then and now. Income tax remains $0 due to child deductions. Sales tax is about 7%, relatively unchanged. Education is a new expense compared to 15 years ago when nobody was in school. If I look back more than 20 years instead, to when I was in college, I can see that college has gotten cheaper. Tuition is a tiny bit lower, but the big change is that tuition and books for the first couple years are now free if you get it done in high school. That cuts the price in half. This is not to say that I pay less. I now have a huge family. Things are cheaper, but I'm buying much more.
  - coolgeek 6y ago
    > My anecdote is as valid as your anecdote In this case, technically true is not the best kind of true. If we generalized both of your anecdata to either - health insurance and housing got cheaper for everybody, or - health insurance and housing got more expensive for everybody which would be more accurate? > If I look back more than 20 years instead, to when I was in college, I can see that college has gotten cheaper Again, that is not generally the case. In fact, the growth in education costs has substantially exceeded the inflation in most other sectors
joshstrange 6y ago
> Many economists, mind you, believe CPI doesn't correct quite enough, and suspect that it overstates the inflation it hopes to measure by around 1%. This is because it tracks the actual prices of a certain "market basket" of goods with specific products in it, and that basket gets out of date, as people substitute products. Please provide a source to back up this claim, everything I've seen says inflation is /under/-stated, not over. CPI absolutely takes into account substitute products and CPI is not simply tracking a basket of items over time.
sooheon 6y ago
The CPI is about as good an index as the DJIA--i.e. it's pretty meaningless but everyone refers to it out of inertia.
lumost 6y ago
> Many economists, mind you, believe CPI doesn't correct quite enough, and suspect that it overstates the inflation it hopes to measure by around 1%. This is because it tracks the actual prices of a certain "market basket" of goods with specific products in it, and that basket gets out of date, as people substitute products. These substitutions are tricky, if hypothetically a consumer can move from eating fresh local produce to preserved canned produce then it's likely they will make the switch under price pressure when fresh produce increases in cost by 2x. You could calculate CPI based on the new realized purchasing patterns - or you could calculate it based on the desired purchasing pattern. Basing CPI on realized purchasing behavior will lead to errors in how inflation is perceived or where consumers are trading quality for cost. From a monetary policy perspective ignoring this consumer tradeoff could lead to sudden shifts in CPI when consumers run out of quality substitutions. I'd argue we've seen this in housing in the major cities where first home prices were excluded for rental equivalent, then rental quality fell in both the amount of space available in a unit as well as the overall quality of the unit. Eventually you hit the wall where quality can't be traded off any longer and you're left with many people who can't legally house themselves.
hinkley 6y ago
There have been several eras in computing where a peripheral had a surplus of capability that applications were not making compelling use of. Most especially video cards. Then one day cards are 'good enough' that someone builds an application that leverages this power, and all of a sudden that becomes the new baseline. Over night you went from having a video card that is three times what you need to a third of what you need. We might consider availability of seafood to be a given now, due to improvements in food logistics. But it wasn't always the case. For sure strawberries in winter were just not a thing one would buy until relatively recently. If I wanted vitamin C in February before it would probably be in the form of jam or tomato sauce.

whoisninja 6y ago

do you realize all the calculations use CPI? the bond market is highly manipulated because of that, why have a market then? why are retail accounts in germany, netherland already negative rates? does that make sense to you? can banks make money that way? danger of nationalization of banking? personal beef? no. I thought this is a forum for civil discussion and reasoning?

smachiz 6y ago
I don't really have a dog in this fight other than to point out your initial post was neither civil nor reasoned - and included not citations or facts. I'm starting to understand what you're insinuating I think, but you still haven't made your point.
- deleted 6y ago
  [deleted]
fennecfoxen 6y ago
> do you realize all the calculations use CPI? Whose calculations? The Federal Reserve's calculations? The Federal Reserve has access to a variety of data sources, and while the CPI is the one that gets the press, they also use series like the chained CPI, the producer price index, bond yield curves, unemployment (and not just U3, but things like U6 and the labor force participation rate). If all you hear about is vanilla CPI, well, that's because you're looking at a newspaper. Anyway, as I said. You have a beef with the Federal Reserve. > why are retail accounts in germany, netherland already negative rates? Public policy, as effected by the European Central Bank. Perhaps you have a beef with them too. > does that make sense to you? I mean, it makes sense as in "I understand why they do it", not as in "I think this is a great thing". > can banks make money that way? I've read that low interest rates do, in fact, squeeze their profits, though with regards to Germany the "three-pillar" system is crufty and weird and squeezes profits too. For instance, here is this lovely article I saw a while back, whose subhead notes "Low interest rates and the three-pillar system squish profits": https://www.economist.com/finance-and-economics/2019/03/02/commerzbank-and-deutsche-bank-would-gain-little-by-merging https://www.economist.com/finance-and-economics/2019/03/02/c... > danger of nationalization of banking? I'm not sure what you're talking about any more. It seems very detached from the Bureau of Labor Statistics, or European equivalent.
- deleted 6y ago
  [deleted]
- nostrademons 6y ago
  Does the Fed look at inflation numbers within individual industries and metro regions? Here's what I'm worried about: if you look at historical examples like say the 1970s inflation, or the post-Cold-War Warsaw Pact hyperinflations, or the post WW-2 hyperinflations in many European countries, prices didn't rise uniformly. Some industry or some region would experience very large inflation, and then eventually it would get transmitted to that industry's customers, or their suppliers. It's basically a network contagion, spread across the links in the economy. We're seeing the early stages of this happen right now - that's what the article is about. Powell's public comments are that "inflation doesn't turn on a dime" and "we're likely to see some localized price increases within certain industries, but no generalized inflation." The thing is - I know from history that the former can be false (particularly in wartime, and shifts from a controlled to a market economy, and the recovery from COVID has aspects of both), and the latter tells me that he's looking at the same data that I am but drawing the opposite conclusion. If 5% of firms are experiencing 30% inflation and the rest are experiencing no inflation, the PPI will read 1.5%. If that 30% inflation is in a core industry though (say food, or energy, or labor) and they pass it along to all their customers, then within 1-2 years you could have 30% inflation across the whole economy without passing through the 2% stage. It's giving me COVID tingles from last year, where in March your overall risk of getting COVID in the U.S. was about 1:100,000, but your risk in NYC was 30%. Then suddenly your risk in Phoenix was 40%, and your risk in South Dakota was 50%, and then your risk in LA was 30%, and suddenly about 20% of the country has had it. Poke holes in my reasoning, please.
mywittyname 6y ago
The European bond market has little connection to the American CPI. European rates are determined by a complex market of futures and interest rate swaps between various banks and markets. Knowing that, negative interest rates make plenty of sense, because interest rates in Europe are relative to other currencies -- unlike in the US, where interest rates are based in a single currency.

em500 6y ago

There's a ridiculous amount of misconception, FUD, and ignorance around inflation / CPI (it doesn't include housing, it overweights entertainent, it exclude food and energy, hedonic adjustments/basket substitutions make everything look artificially cheap) To professional economists, it can be infuriating to read (I imagine similar as medical professionals reading antivax blogs/comments, or radio engineers reading about dangers of 5G radiation). I had a good intention once, to write layman exposition to clear most of the misconceptions. But much like the calculation of the CPI itself, it's a lot of work and ultimately not very rewarding. An unfortunate fact is that a very large part of the CPI comes from household survey responses. These are too expensive for non-professionals to reproduce and verify independently, so probably no amount of writing can really convince CPI-doubters.

pwm 6y ago
I'm not an economist. My layman understanding of inflation is that it is the measure of change of purchasing power a unit of currency has over time. I think most laymen, including myself, questions how this rather theoretical concept is actually measured in real life. Eg. I think it is a sensible expectation that if inflation was said to be 2% for 20 years then I should be able to buy a house that cost $200K 20 years ago for ~$300K now. This expectation is worlds away from reality which then prompts people to question the way inflation is measured. I know you wrote that you don't really have the inclination anymore to educate on the topic but I for one would be grateful for any pointers how to explain the above discrepancy?
- gruez 6y ago
  >My layman understanding of inflation is that it is the measure of change of purchasing power a unit of currency has over time >I know you wrote that you don't really have the inclination anymore to educate on the topic but I for one would be grateful for any pointers how to explain the above discrepancy? obvious answer: it's not "price index", it's "consumer price index". First paragraph from wikipedia: >A consumer price index measures changes in the price level of a weighted average market basket of consumer goods and services purchased by households.
- 6y ago

CyberRabbi 6y ago

> But if someone's "punishing savers" and "perpetuating consumerism", it's not the index, and it's not the people compiling the index, and it's not the people trying to make the index more accurate by adjusting for quality. I’ve seen this a lot around the net and I’m honestly and genuinely curious. What drives you to defend the CPI?

gruez 6y ago
>What drives you to defend the CPI? What drives you to question the motives of the commenter rather than responding to his arguments directly?
- bingbong70 6y ago
  He's right, defending the CPI calculation is almost criminal. Many people on fixed incomes that are adjusted based on the CPI are negatively affected. This bogus formula will be conveniently altered to stay under 2% if inflation creeps into the basket of goods being calculated.
  - gruez 6y ago
    >He's right Perhaps, but the right way to approach this is to point out the factual errors, rather than making thinly veiled insinuations that his opponent is a shill for the BLS or whatever. >defending the CPI calculation is almost criminal Ah yes, because the only possible explanation for why people don't hold the same beliefs as you is because they're acting with malice. For this and the previous point I refer you to the site guidelines: https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html, namely: Please don't post insinuations about astroturfing, shilling, brigading, foreign agents and the like. It degrades discussion and is usually mistaken. Assume good faith. >Many people on fixed incomes that are adjusted based on the CPI are negatively affected. This bogus formula will be conveniently altered to stay under 2% if inflation creeps into the basket of goods being calculated. All this does is provide a motive for why CPI might be wrong, but stops short of providing evidence or counter-arguments.

lotsofpulp 6y ago

>The consumer price index is a series of numbers designed to help people understand what dollar-denominated figures mean to ordinary people going about their lives, spending those dollars. It's done an absolutely terrible job for the past 15 years, for my lifestyle and where I live. I suspect it hasn't reflect many other people's budgets either, hence the common argument of official CPI figures being nonsense. I don't even have to look at anything other than the changing health insurance premiums/deductibles/co pays/out of pocket maximums to prove it, not to mention real estate, childcare, taxes, and education. It eviscerates any downward effect tech products and grocery prices might have.

souprock 6y ago
My anecdote is as valid as your anecdote. Life got cheaper over the past 15 years, not counting changes in family size. I used to have insurance co-payment, a deduction from my paycheck, and an unreachable out-of-pocket maximum. All of that has changed. I used to pay about $1200 rent for a crummy house in a dangerous neighborhood. Now, with a paid-off mortgage, I pay just $266 for property tax on a house that is 3109 square feet on 0.39 acres. Childcare is my wife, so $0 then and now. Income tax remains $0 due to child deductions. Sales tax is about 7%, relatively unchanged. Education is a new expense compared to 15 years ago when nobody was in school. If I look back more than 20 years instead, to when I was in college, I can see that college has gotten cheaper. Tuition is a tiny bit lower, but the big change is that tuition and books for the first couple years are now free if you get it done in high school. That cuts the price in half. This is not to say that I pay less. I now have a huge family. Things are cheaper, but I'm buying much more.
- coolgeek 6y ago
  > My anecdote is as valid as your anecdote In this case, technically true is not the best kind of true. If we generalized both of your anecdata to either - health insurance and housing got cheaper for everybody, or - health insurance and housing got more expensive for everybody which would be more accurate? > If I look back more than 20 years instead, to when I was in college, I can see that college has gotten cheaper Again, that is not generally the case. In fact, the growth in education costs has substantially exceeded the inflation in most other sectors

joshstrange 6y ago

sooheon 6y ago

The CPI is about as good an index as the DJIA--i.e. it's pretty meaningless but everyone refers to it out of inertia.

lumost 6y ago

> Many economists, mind you, believe CPI doesn't correct quite enough, and suspect that it overstates the inflation it hopes to measure by around 1%. This is because it tracks the actual prices of a certain "market basket" of goods with specific products in it, and that basket gets out of date, as people substitute products. These substitutions are tricky, if hypothetically a consumer can move from eating fresh local produce to preserved canned produce then it's likely they will make the switch under price pressure when fresh produce increases in cost by 2x. You could calculate CPI based on the new realized purchasing patterns - or you could calculate it based on the desired purchasing pattern. Basing CPI on realized purchasing behavior will lead to errors in how inflation is perceived or where consumers are trading quality for cost. From a monetary policy perspective ignoring this consumer tradeoff could lead to sudden shifts in CPI when consumers run out of quality substitutions. I'd argue we've seen this in housing in the major cities where first home prices were excluded for rental equivalent, then rental quality fell in both the amount of space available in a unit as well as the overall quality of the unit. Eventually you hit the wall where quality can't be traded off any longer and you're left with many people who can't legally house themselves.

hinkley 6y ago

There have been several eras in computing where a peripheral had a surplus of capability that applications were not making compelling use of. Most especially video cards. Then one day cards are 'good enough' that someone builds an application that leverages this power, and all of a sudden that becomes the new baseline. Over night you went from having a video card that is three times what you need to a third of what you need. We might consider availability of seafood to be a given now, due to improvements in food logistics. But it wasn't always the case. For sure strawberries in winter were just not a thing one would buy until relatively recently. If I wanted vitamin C in February before it would probably be in the form of jam or tomato sauce.