5 ms·

CPI is misleading, M3 is more accurate. CPI is heavily influenced by technology trends and offshoring of labor for widgets. House and asset prices tell differe

CPI is misleading, M3 is more accurate. CPI is heavily influenced by technology trends and offshoring of labor for widgets. House and asset prices tell different story.

JumpCrisscross 5y ago
> CPI is misleading, M3 is more accurate This assumes a constant velocity of money. That's empirically false. Money supply can remain stable while prices soar or collapse solely on the back of velocity changes.
mlyle 5y ago
> CPI is heavily influenced by technology trends and offshoring of labor for widgets. As opposed to M3, which is influenced by economic growth exceeding inflation, population growth, just overall changes in velocity of money, etc...
h4x0r12345 5y ago
Correct. Some would argue that CPI is specifically engineered to mislead.
- carnitine 5y ago
  Why do banks and asset managers trade billions in CPI derivatives if it is a useless, engineered metric?
  - h4x0r12345 5y ago
    I never said it was useless. You're putting words in my mouth.
thunderbird120 5y ago
CPI includes housing and M3 is effectively never a good measure of inflation. People have this misconception that the supply of money is directly inversely proportional to the value of one unit of that currency. That is not how that works at all. Inflation is demand driven. When demand falls off a cliff you can have periods of deflation during which money supply increased significantly.
Retric 5y ago
CPI covers Food energy housing etc because people aren’t just buying any one thing. We could argue about the correct mix to use, but M3 alone ignores population and economic growth etc making it a vastly worse measure of inflation. This becomes really obvious if you look at M3 vs prices over long periods. If you have say 2x as many people and M3 is 2x the size then a 1$ candy bar that’s still 1$ somehow demonstrates inflation and increases in productivity. Except productivity per worker was unchanged only total economic output which is irrelevant to individuals.
gruez 5y ago
>CPI is misleading, M3 is more accurate. I wonder what happens if we apply that to other metrics... https://i.imgur.com/2GkpBLZ.png https://i.imgur.com/2GkpBLZ.png Uh oh. If we take raw gdp (ie. not adjusted for inflation/cpi), and adjust it by M3 instead, we find that the economy has shrunk by nearly 50% since the mid 90s. That can't be right, can it? Chart was made in excel from these data sources: https://fred.stlouisfed.org/series/MABMM301USM189S https://fred.stlouisfed.org/series/MABMM301USM189S https://fred.stlouisfed.org/series/GDPC1 https://fred.stlouisfed.org/series/GDPC1 https://fred.stlouisfed.org/series/GDP https://fred.stlouisfed.org/series/GDP edit: fixed axis format.

CPI is misleading, M3 is more accurate. CPI is heavily influenced by technology trends and offshoring of labor for widgets. House and asset prices tell different story.

JumpCrisscross 5y ago

> CPI is misleading, M3 is more accurate This assumes a constant velocity of money. That's empirically false. Money supply can remain stable while prices soar or collapse solely on the back of velocity changes.

mlyle 5y ago

> CPI is heavily influenced by technology trends and offshoring of labor for widgets. As opposed to M3, which is influenced by economic growth exceeding inflation, population growth, just overall changes in velocity of money, etc...

h4x0r12345 5y ago

Correct. Some would argue that CPI is specifically engineered to mislead.

carnitine 5y ago
Why do banks and asset managers trade billions in CPI derivatives if it is a useless, engineered metric?
- h4x0r12345 5y ago
  I never said it was useless. You're putting words in my mouth.

thunderbird120 5y ago

CPI includes housing and M3 is effectively never a good measure of inflation. People have this misconception that the supply of money is directly inversely proportional to the value of one unit of that currency. That is not how that works at all. Inflation is demand driven. When demand falls off a cliff you can have periods of deflation during which money supply increased significantly.

Retric 5y ago

CPI covers Food energy housing etc because people aren’t just buying any one thing. We could argue about the correct mix to use, but M3 alone ignores population and economic growth etc making it a vastly worse measure of inflation. This becomes really obvious if you look at M3 vs prices over long periods. If you have say 2x as many people and M3 is 2x the size then a 1$ candy bar that’s still 1$ somehow demonstrates inflation and increases in productivity. Except productivity per worker was unchanged only total economic output which is irrelevant to individuals.

gruez 5y ago

>CPI is misleading, M3 is more accurate. I wonder what happens if we apply that to other metrics... https://i.imgur.com/2GkpBLZ.png https://i.imgur.com/2GkpBLZ.png Uh oh. If we take raw gdp (ie. not adjusted for inflation/cpi), and adjust it by M3 instead, we find that the economy has shrunk by nearly 50% since the mid 90s. That can't be right, can it? Chart was made in excel from these data sources: https://fred.stlouisfed.org/series/MABMM301USM189S https://fred.stlouisfed.org/series/MABMM301USM189S https://fred.stlouisfed.org/series/GDPC1 https://fred.stlouisfed.org/series/GDPC1 https://fred.stlouisfed.org/series/GDP https://fred.stlouisfed.org/series/GDP edit: fixed axis format.