4 ms·

> Good X and Good Y both increase in price over some period of time, but one does by 2% and the other by 4%. What is the true value of inflation? 2% or 4%? Or i

> Good X and Good Y both increase in price over some period of time, but one does by 2% and the other by 4%. What is the true value of inflation? 2% or 4%? Or is it 3%? Or is it 3.5% because you buy one of the goods twice as often as the other? That's a question of first philosophical origins, and there's no "right" answer. Shouldn't the solution basically be how much monthly or yearly does an average consumer spend on x good, and then that is included in the calculation of inflation by that amount. So if the average consumer spends 30% on housing, then housing should be 30% of the measurement.

sokoloff 6y ago
Yes. What then should happen when Good Z is invented and grows from 0% to substitute for 25% of Good Y? How should a measure of inflation track that? What if Good X becomes half as expensive per unit but people consume twice as much of it as a result? Should that be reflected as a reduction of inflation? If housing per front door goes up by 100% but only up per square foot [or room] by 50%, should the inflation rate of housing be 50%, 75%, or 100%?
- lumost 6y ago
  TBH looking at my budgets I think this type of argument is missing the point. Excluding savings, My budget boils down to discretionary and non-discretionary spending. Roughly 1/4th of my budget is fully discretionary and will vary year to year with what I like to do, tracking inflation on the discretionary portion seems like a high difficulty activity which ultimately doesn't matter to my perception of prices. The remaining 75% of my budget is non-discretionary covering items like - Housing ~1/4 - Childcare ~1/4 - Food ~1/8 - Non-discretionary expenses (repairs, car, phone, computer, etc. ) ~1/8 I'm fortunate that my healthcare is inexpensive at the moment, but it's pretty straightforward to calculate my future expected health costs and my previous education costs. I'd judge that calculating inflation on the non-discretionary portion of my budget should be trivial, small items like phones/computers simply do not add up to much relative to the big ones like housing, childcare, food, health, and education. Ironically the CPI seems to focus on the magic basket of goods and not what will actually move the needle for perceived costs by most individuals.
  - tharkun__ 6y ago
    Even discretionary and non discretionary is a contentious item and in a CPI has to be defined. For example: is TV service discretionary? Is Internet service discretionary? Is broadband Internet access discretionary? I just checked. Bell TV + Internet is advertised as $120CAD right now. Cell service combined with that add $70CAD. Per month. With taxes on top that's round about $2,620 per year if we are talking Single person household. Now it depends on where you are and whether you live alone or not and such. In Toronto as a single person at the median income this alone can be 4.5% of your net income. I'd say that moves the needle. I pay less than half of this with a different ISP and cell provider + Netflix. Of course the precise calculations change as we move between cities and provinces as well as single person vs. families etc. as base costs get shared.
    - lumost 6y ago
      The hypothetical single income earner that we are debating would pay an average rent of $2250/mo for a 1-bedroom in Toronto. Roughly 10x the cost of TV, internet, and phone. This cost has risen from ~$1750/mo in 2017 at roughly ~10% per year. For perspective, our hypothetical individual would be experiencing house price inflation equal to a new TV, phone, and internet bill every year. (1-bedrooms displayed the lowest price increase of any housing category in Toronto according to https://www.zumper.com/rent-research/toronto-on https://www.zumper.com/rent-research/toronto-on )
      - tharkun__ 6y ago
        Absolutely agreed that there are worse categories than your phone/internet/tv bills. And yet even this relatively small and apparently I Yunsignificant non-discretionary (or was some of it discretionary? Or all of it?) item still makes up 4.5% of your net income. That I still call significant. Once I have a house the inflation on that also doesn't affect me that much any more (sure, evaluations increase my tax bill - which btw is a NA thing that is irrelevant in Germany for example as long as you have a mortgage) but other items do.
        6y ago

sokoloff 6y ago

Yes. What then should happen when Good Z is invented and grows from 0% to substitute for 25% of Good Y? How should a measure of inflation track that? What if Good X becomes half as expensive per unit but people consume twice as much of it as a result? Should that be reflected as a reduction of inflation? If housing per front door goes up by 100% but only up per square foot [or room] by 50%, should the inflation rate of housing be 50%, 75%, or 100%?

lumost 6y ago
TBH looking at my budgets I think this type of argument is missing the point. Excluding savings, My budget boils down to discretionary and non-discretionary spending. Roughly 1/4th of my budget is fully discretionary and will vary year to year with what I like to do, tracking inflation on the discretionary portion seems like a high difficulty activity which ultimately doesn't matter to my perception of prices. The remaining 75% of my budget is non-discretionary covering items like - Housing ~1/4 - Childcare ~1/4 - Food ~1/8 - Non-discretionary expenses (repairs, car, phone, computer, etc. ) ~1/8 I'm fortunate that my healthcare is inexpensive at the moment, but it's pretty straightforward to calculate my future expected health costs and my previous education costs. I'd judge that calculating inflation on the non-discretionary portion of my budget should be trivial, small items like phones/computers simply do not add up to much relative to the big ones like housing, childcare, food, health, and education. Ironically the CPI seems to focus on the magic basket of goods and not what will actually move the needle for perceived costs by most individuals.
- tharkun__ 6y ago
  Even discretionary and non discretionary is a contentious item and in a CPI has to be defined. For example: is TV service discretionary? Is Internet service discretionary? Is broadband Internet access discretionary? I just checked. Bell TV + Internet is advertised as $120CAD right now. Cell service combined with that add $70CAD. Per month. With taxes on top that's round about $2,620 per year if we are talking Single person household. Now it depends on where you are and whether you live alone or not and such. In Toronto as a single person at the median income this alone can be 4.5% of your net income. I'd say that moves the needle. I pay less than half of this with a different ISP and cell provider + Netflix. Of course the precise calculations change as we move between cities and provinces as well as single person vs. families etc. as base costs get shared.
  - lumost 6y ago
    The hypothetical single income earner that we are debating would pay an average rent of $2250/mo for a 1-bedroom in Toronto. Roughly 10x the cost of TV, internet, and phone. This cost has risen from ~$1750/mo in 2017 at roughly ~10% per year. For perspective, our hypothetical individual would be experiencing house price inflation equal to a new TV, phone, and internet bill every year. (1-bedrooms displayed the lowest price increase of any housing category in Toronto according to https://www.zumper.com/rent-research/toronto-on https://www.zumper.com/rent-research/toronto-on )
    - tharkun__ 6y ago
      Absolutely agreed that there are worse categories than your phone/internet/tv bills. And yet even this relatively small and apparently I Yunsignificant non-discretionary (or was some of it discretionary? Or all of it?) item still makes up 4.5% of your net income. That I still call significant. Once I have a house the inflation on that also doesn't affect me that much any more (sure, evaluations increase my tax bill - which btw is a NA thing that is irrelevant in Germany for example as long as you have a mortgage) but other items do.
      - 6y ago