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The CPI basically measures the median American's budget. So if wealth inequality is unchanging, then it's a decent measure of economy-wide inflation. Otherwise,
by lend000 5y ago
The CPI basically measures the median American's budget. So if wealth inequality is unchanging, then it's a decent measure of economy-wide inflation. Otherwise, it measures inflation x delta wealth inequality.
- paulryanrogers 5y agoWhat if those budgets have significantly less buying power? Especially in critical areas like housing, healthcare, and education?
- lend000 5y agoThen people will tend to buy less of them to fit their budget. Here is the most telling chart: inflation-adjusted wages in the US [0]. They never change, because the CPI uses a survey to determine what the average American is buying, and how much it costs, then they adjust weights based on how much they spend on it (which cancels out the cost because people change their buying preferences based on current prices) and leaves you with the median American's total expenditure. Yeah, that's really how they do it. And that's why CPI is a joke. [0] https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/ https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...
- paulryanrogers 5y agoIs it possible people are buying less by volume, even if amounts spent level off? For example smaller homes, less healthcare, getting less educational value per (adjusted) dollar spent?
- lend000 5y agoYes, that's exactly it. Such changes are not well reflected in the CPI model.