66 ms·

Public Comment on Inflation Measurement

36 points by reedjosh 5y ago

ultrablack 5y ago
Certainly inflation measures doesn’t appear to take housing cost into account.
- deleted 5y ago
  [deleted]
- deleted 5y ago
  [deleted]
- nemo44x 5y ago
  In some markets, sure. However if you look at median home prices from 1980 to today and factor in interest rates (which are much lower today) and median income then you see that homes are about the same as they were in terms of monthly payment. With the upside today that early in your mortgage more of your payment goes to principal. If interest rates were to go to 8% overnight, besides crashing the global economy you’d see home prices cut in half. Homes are priced at what people that want to live there are able to pay per month. As interest rates fall home prices rise. Like I said certain markets have outpaced but their median incomes have outpaced as well. This makes sense as the upper middle class has grown a lot the last 40 years to make up much more of the population by percentage (there’s a lot more high paying professional jobs today) and people like to live among people of similar financial classes for obvious reasons.
- deleted 5y ago
  [deleted]
- nabla9 5y ago
  House prices are considered asset prices, not consumer goods. Only shelter part of housing is in the CPI.
- jeffreyrogers 5y ago
  There is a housing component to the CPI. It uses rents instead of home prices and makes some tradeoffs, but it seems fair to me overall. If you live in SF or NYC or similar cities it can seem that CPI underestimates inflation due to high rents/home price, but it is a national level metric, so that's somewhat expected.
  - lotsofpulp 5y ago
    I think it is more class related. As income/wealth divide grows, the cost to move up to the next socioeconomic class grows. If you are expecting to have jumped up the ranks into a certain neighborhood or school district, a certain city, vacation to certain destinations, then those will have become further out of reach. It might be accurate to say the cost of your dreams or goals is increasing faster than official statistics.
- Aunche 5y ago
  Houses are assets as much as they are expenses, so the CPI uses rent instead of home price.
hkt 5y ago
There's a lot to be said about how measurements of inflation could be improved, but this kind of blog is regrettably not one of the useful ones. It has been a known quantity for a long time - the wiki talk page is a good start: https://en.m.wikipedia.org/wiki/Talk:Shadowstats.com#Shadowstats.com_is_not_accurate https://en.m.wikipedia.org/wiki/Talk:Shadowstats.com#Shadows... Also, RationalWiki: https://rationalwiki.org/wiki/Shadow_Government_Statistics https://rationalwiki.org/wiki/Shadow_Government_Statistics
- notabanker 5y ago
  I would like to read a point-by-point critique of Shadowstats but have yet to come across one. The wikis you've listed are more muckraking in nature than a technical rebuttal. A poorly done critique increases rather than diminishes the credibility of the target.
  - tacostakohashi 5y ago
    Try this: https://www.washingtonpost.com/news/wonk/wp/2014/07/17/the-intellectual-cesspool-of-the-inflation-truthers/ https://www.washingtonpost.com/news/wonk/wp/2014/07/17/the-i...
    - mikeyouse 5y ago
      Even more simply - Shadowstats consumer inflation calculator thinks we've had at least 7% inflation up until ~2010 and then 10+% since then. (http://www.shadowstats.com/imgs/sgs-cpi.gif?hl=ad&t=1628692430 http://www.shadowstats.com/imgs/sgs-cpi.gif?hl=ad&t=16286924...) What in your life costs 500%+ more than it did in 1995 for the same product? No need for in-depth debunking when it's self-evidently nonsense.
      - loeg 5y ago
        > What in your life costs 500%+ more than it did in 1995 for the same product? Reflexively, I thought of housing (Seattle area), but apparently that has only increased by 270% since 1995.[1] [1]: https://fred.stlouisfed.org/series/ATNHPIUS42644Q https://fred.stlouisfed.org/series/ATNHPIUS42644Q
sebmellen 5y ago
> Your PHP installation appears to be missing the MySQL which is required for WordPress. What a brave and stunning public comment!
tacostakohashi 5y ago
This website's subscription price has been unchanged at $175/year or $89/six months since (at least) 2008. http://www.shadowstats.com/subscriptions http://www.shadowstats.com/subscriptions https://web.archive.org/web/20080512223437/http://www.shadowstats.com/subscriptions https://web.archive.org/web/20080512223437/http://www.shadow...
- IfOnlyYouKnew 5y ago
  …and its revenue is inflation-proof at 0$.
iamdamian 5y ago
Yes, any inflation measure is imperfect, but I'm not sure how it could even theoretically be perfect given changing technology. How do you properly measure substitution effects that the iPhone has had relative to everything it imperfectly replaced; or the way services have replaced ownership in some areas of life? Given the complexity involved, the current measure seems to do the job well enough. As a side note, this mistrust of the CPI is something Eric Weinstein loves to bring up, too, with the same narrative about CPI being designed by politicians. After watching him try to convince economists [0][1] of the points made in this article (and avoiding questions that get specific or complex), I'm unconvinced I need to care. [Edited to add second, more relevant video] [0]: https://www.youtube.com/watch?v=h5gnATQMtPg https://www.youtube.com/watch?v=h5gnATQMtPg [1]: https://www.youtube.com/watch?v=zwiHv7xVQ_c https://www.youtube.com/watch?v=zwiHv7xVQ_c
- nostrademons 5y ago
  Is there a relevant time point in that presentation? It looks like the bulk of it is about inflation as in cosmology & physics, not economics.
  - iamdamian 5y ago
    The video is a tad confusing. He has this idea that methods from physics and calculus should be ported over to economics to tackle unsolved problems like inflation, and he doesn't clearly delineate the two when speaking. (The economics portion starts about 16 minutes in.) I realized though that I didn't link to the best video to convey my point. Here is a more specific talk on inflation given by him and his wife to a room full of economists: https://www.youtube.com/watch?v=zwiHv7xVQ_c https://www.youtube.com/watch?v=zwiHv7xVQ_c Notably, the economists in the room point out that the inflation problem has already been tackled from a theoretical angle which does incorporate calculus. However, they say the resulting idea (the Divisia index) isn't practical for nation-level inflation measurements.
- IfOnlyYouKnew 5y ago
  This distrust of “politicians’ and public institutions (plus ‘the media”) is half of what’s eating away democracies all over the world. Actual corruption goes unpunished because “they are all corrupt” is easily turned from a cynical accusation into an excuse. Bitcoin is turning coal into flooding because people are afraid of the monetary crises of the 1920s (hyperinflation) and spooked by even the silliest conspiracy myths (“the FED is a private bank”). So, yes, measures of inflation aren’t perfect. But it’s “not perfect” in the most trivial sense: even some well-chosen single item (Big Mac?) gets you a measure of inflation that will be close enough most of the time. The actual basket improves it from maybe 90 % perfect to 98 %.
hartator 5y ago
There is also the old debate between monetary inflation and price inflation. Monetary inflation being the fact of just printing money and used to be what you refer to in economics books when you just say “inflation”.
- SkyMarshal 5y ago
  Yes that term does seem to get commingled with different meanings. Increasing money supply vs increasing prices seem to be the main ones. The former usually results in the latter, but not always, and sometimes with lag. And sometimes prices can rise without an increase in the money supply, for other reasons - a decrease in supply, an increase in demand due to some other factor than monetary inflation, etc. And that's not to mention the different measurements of money - M0, M1, etc. - as subsets of monetary inflation. I wish economists and journalists would better differentiate by using "monetary inflation", "price inflation", and/or other qualifiers for exactly which one they're talking about.
nabla9 5y ago
The article is misguided. Assumes conspiracy. - Studies on CPI indicate that CPI is overestimated, not underestimated. - It's known fact that inflation does not match the common experience. It's solely because people remember easier large price increases and can't weight them correctly. - There are other measures but they have even worse problems. For policy issues core CPI is better.
- jeffreyrogers 5y ago
  I think this is generally right, and if "real" CPI was much higher than calculated you would see it eventually since the difference between real and calculated would be compounded over time. However, because CPI is done at the national level while people typically live in one area, it is possible that HN readers in SF or wherever experience higher inflation than the CPI calculates. Certainly their rents have gone up much more than someone's in Kansas City.
  - nabla9 5y ago
    When you see news that say rent prices go trough roof, it usually means new leases. If new leases go up 10% and only 5% of renters sign a new lease, that's only 0.5% increase to rent prices.
  - dragonwriter 5y ago
    > However, because CPI is done at the national level while people typically live in one area, it is possible that HN readers in SF or wherever experience higher inflation than the CPI calculates. It could even be that most people experience above-average inflation, because there are places with relatively low population but very low, relative, inflation dragging the averages down. If that is the case, it might be possible to alter how geographic aggregation works to calculate a CPI-for-median-consumer that better captures the common experience. This might be better for some policy purposes, as well.
gowld 5y ago
(2013)
jjgreen 5y ago
Modern calculations of inflation use the geometric mean of price increases, while previously it was the arithmetic mean. The reason is exactly the geometric-arithmetic mean inequality [1]. This is the largest theft ever made, and no-one knows or wants to know about it. [1] https://en.wikipedia.org/wiki/Inequality_of_arithmetic_and_geometric_means https://en.wikipedia.org/wiki/Inequality_of_arithmetic_and_g...
only_as_i_fall 5y ago
If the goal of cpi is to reflect what consumers feel the inflation rate is regardless of what any consistent measurement scheme says, the BLS could get rid of the pesky measurement nonsense altogether just take an annual survey. Think of the cost savings!
cecilpl2 5y ago
This guy claims inflation in the 8-10% range for the last 15 years, which translates to a 3-4x price increase since 2006. Anecdotally, having tracked all my expenses since becoming an adult in 2006, in my area I have noticed: * Food prices 1-1.5x (unchanged to 50% higher or so). * Rent prices ~2x. * House prices ~4x. * Gas prices 1.5x * Transit prices 1.5x * Alcohol prices 1-1.2x * Entertainment prices 1-1.5x * Newest iPhone 1.8x * Newest Playstation 1x The housing crisis stands out as an obvious outlier, but most of this is consistent with inflation in the 2-3% range.
- klipklop 5y ago
  Food prices are hard to notice because often instead of raising the price they make the package smaller. So on top of your 50% price increase you might get slightly less food for the dollar. I find it interesting that the PlayStation stayed rather flat, but the iPhone went up so much over time. 8-10% inflation does not sound like it's true, but it's certainly higher than the CPI suggests.
  - johnsimer 5y ago
    Based on OP's detailed-orientedness, I'd assume he was tracking his total monthly food expenses.
    - klipklop 5y ago
      I understand that, but if a container of food shrinks by an ounce or two over time most won't buy an entire extra one to make up the difference. If you could buy all food by weight this would be easier to notice and make an apples to apples comparison. Hat's off to the parent comment if they even tracked it down to the exact amount of food and kept it consistent for years. Most people set a budget of $X dollars of food that is rather generous and if they get slightly less food they don't notice because they are already buying an excess of calories most of the time.
      - Negitivefrags 5y ago
abeppu 5y ago
> Anecdotal evidence and occasional surveys have indicated that the general public believes inflation is running well above official reporting, and that public perceptions tend to mirror the inflation experience that once was reflected in the government’s formal CPI reporting. ... but one might reasonably suppose that part of the public's supposed perception of inflation influenced not just by actual prices but by the way we talk about prices and inflation? I.e. some people that keep talking about inflation being "actually" higher than measured contribute to people believing that inflation is higher.

36 points by reedjosh 5y ago

ultrablack 5y ago

Certainly inflation measures doesn’t appear to take housing cost into account.

deleted 5y ago
[deleted]
deleted 5y ago
[deleted]
nemo44x 5y ago
In some markets, sure. However if you look at median home prices from 1980 to today and factor in interest rates (which are much lower today) and median income then you see that homes are about the same as they were in terms of monthly payment. With the upside today that early in your mortgage more of your payment goes to principal. If interest rates were to go to 8% overnight, besides crashing the global economy you’d see home prices cut in half. Homes are priced at what people that want to live there are able to pay per month. As interest rates fall home prices rise. Like I said certain markets have outpaced but their median incomes have outpaced as well. This makes sense as the upper middle class has grown a lot the last 40 years to make up much more of the population by percentage (there’s a lot more high paying professional jobs today) and people like to live among people of similar financial classes for obvious reasons.
deleted 5y ago
[deleted]
nabla9 5y ago
House prices are considered asset prices, not consumer goods. Only shelter part of housing is in the CPI.
jeffreyrogers 5y ago
There is a housing component to the CPI. It uses rents instead of home prices and makes some tradeoffs, but it seems fair to me overall. If you live in SF or NYC or similar cities it can seem that CPI underestimates inflation due to high rents/home price, but it is a national level metric, so that's somewhat expected.
- lotsofpulp 5y ago
  I think it is more class related. As income/wealth divide grows, the cost to move up to the next socioeconomic class grows. If you are expecting to have jumped up the ranks into a certain neighborhood or school district, a certain city, vacation to certain destinations, then those will have become further out of reach. It might be accurate to say the cost of your dreams or goals is increasing faster than official statistics.
Aunche 5y ago
Houses are assets as much as they are expenses, so the CPI uses rent instead of home price.

hkt 5y ago

There's a lot to be said about how measurements of inflation could be improved, but this kind of blog is regrettably not one of the useful ones. It has been a known quantity for a long time - the wiki talk page is a good start: https://en.m.wikipedia.org/wiki/Talk:Shadowstats.com#Shadowstats.com_is_not_accurate https://en.m.wikipedia.org/wiki/Talk:Shadowstats.com#Shadows... Also, RationalWiki: https://rationalwiki.org/wiki/Shadow_Government_Statistics https://rationalwiki.org/wiki/Shadow_Government_Statistics

notabanker 5y ago
I would like to read a point-by-point critique of Shadowstats but have yet to come across one. The wikis you've listed are more muckraking in nature than a technical rebuttal. A poorly done critique increases rather than diminishes the credibility of the target.
- tacostakohashi 5y ago
  Try this: https://www.washingtonpost.com/news/wonk/wp/2014/07/17/the-intellectual-cesspool-of-the-inflation-truthers/ https://www.washingtonpost.com/news/wonk/wp/2014/07/17/the-i...
  - mikeyouse 5y ago
    Even more simply - Shadowstats consumer inflation calculator thinks we've had at least 7% inflation up until ~2010 and then 10+% since then. (http://www.shadowstats.com/imgs/sgs-cpi.gif?hl=ad&t=1628692430 http://www.shadowstats.com/imgs/sgs-cpi.gif?hl=ad&t=16286924...) What in your life costs 500%+ more than it did in 1995 for the same product? No need for in-depth debunking when it's self-evidently nonsense.
    - loeg 5y ago
      > What in your life costs 500%+ more than it did in 1995 for the same product? Reflexively, I thought of housing (Seattle area), but apparently that has only increased by 270% since 1995.[1] [1]: https://fred.stlouisfed.org/series/ATNHPIUS42644Q https://fred.stlouisfed.org/series/ATNHPIUS42644Q

sebmellen 5y ago

> Your PHP installation appears to be missing the MySQL which is required for WordPress. What a brave and stunning public comment!

tacostakohashi 5y ago

This website's subscription price has been unchanged at $175/year or $89/six months since (at least) 2008. http://www.shadowstats.com/subscriptions http://www.shadowstats.com/subscriptions https://web.archive.org/web/20080512223437/http://www.shadowstats.com/subscriptions https://web.archive.org/web/20080512223437/http://www.shadow...

IfOnlyYouKnew 5y ago
…and its revenue is inflation-proof at 0$.

iamdamian 5y ago

Yes, any inflation measure is imperfect, but I'm not sure how it could even theoretically be perfect given changing technology. How do you properly measure substitution effects that the iPhone has had relative to everything it imperfectly replaced; or the way services have replaced ownership in some areas of life? Given the complexity involved, the current measure seems to do the job well enough. As a side note, this mistrust of the CPI is something Eric Weinstein loves to bring up, too, with the same narrative about CPI being designed by politicians. After watching him try to convince economists [0][1] of the points made in this article (and avoiding questions that get specific or complex), I'm unconvinced I need to care. [Edited to add second, more relevant video] [0]: https://www.youtube.com/watch?v=h5gnATQMtPg https://www.youtube.com/watch?v=h5gnATQMtPg [1]: https://www.youtube.com/watch?v=zwiHv7xVQ_c https://www.youtube.com/watch?v=zwiHv7xVQ_c

nostrademons 5y ago
Is there a relevant time point in that presentation? It looks like the bulk of it is about inflation as in cosmology & physics, not economics.
- iamdamian 5y ago
  The video is a tad confusing. He has this idea that methods from physics and calculus should be ported over to economics to tackle unsolved problems like inflation, and he doesn't clearly delineate the two when speaking. (The economics portion starts about 16 minutes in.) I realized though that I didn't link to the best video to convey my point. Here is a more specific talk on inflation given by him and his wife to a room full of economists: https://www.youtube.com/watch?v=zwiHv7xVQ_c https://www.youtube.com/watch?v=zwiHv7xVQ_c Notably, the economists in the room point out that the inflation problem has already been tackled from a theoretical angle which does incorporate calculus. However, they say the resulting idea (the Divisia index) isn't practical for nation-level inflation measurements.
IfOnlyYouKnew 5y ago
This distrust of “politicians’ and public institutions (plus ‘the media”) is half of what’s eating away democracies all over the world. Actual corruption goes unpunished because “they are all corrupt” is easily turned from a cynical accusation into an excuse. Bitcoin is turning coal into flooding because people are afraid of the monetary crises of the 1920s (hyperinflation) and spooked by even the silliest conspiracy myths (“the FED is a private bank”). So, yes, measures of inflation aren’t perfect. But it’s “not perfect” in the most trivial sense: even some well-chosen single item (Big Mac?) gets you a measure of inflation that will be close enough most of the time. The actual basket improves it from maybe 90 % perfect to 98 %.

hartator 5y ago

There is also the old debate between monetary inflation and price inflation. Monetary inflation being the fact of just printing money and used to be what you refer to in economics books when you just say “inflation”.

SkyMarshal 5y ago
Yes that term does seem to get commingled with different meanings. Increasing money supply vs increasing prices seem to be the main ones. The former usually results in the latter, but not always, and sometimes with lag. And sometimes prices can rise without an increase in the money supply, for other reasons - a decrease in supply, an increase in demand due to some other factor than monetary inflation, etc. And that's not to mention the different measurements of money - M0, M1, etc. - as subsets of monetary inflation. I wish economists and journalists would better differentiate by using "monetary inflation", "price inflation", and/or other qualifiers for exactly which one they're talking about.

nabla9 5y ago

The article is misguided. Assumes conspiracy. - Studies on CPI indicate that CPI is overestimated, not underestimated. - It's known fact that inflation does not match the common experience. It's solely because people remember easier large price increases and can't weight them correctly. - There are other measures but they have even worse problems. For policy issues core CPI is better.

jeffreyrogers 5y ago
I think this is generally right, and if "real" CPI was much higher than calculated you would see it eventually since the difference between real and calculated would be compounded over time. However, because CPI is done at the national level while people typically live in one area, it is possible that HN readers in SF or wherever experience higher inflation than the CPI calculates. Certainly their rents have gone up much more than someone's in Kansas City.
- nabla9 5y ago
  When you see news that say rent prices go trough roof, it usually means new leases. If new leases go up 10% and only 5% of renters sign a new lease, that's only 0.5% increase to rent prices.
- dragonwriter 5y ago
  > However, because CPI is done at the national level while people typically live in one area, it is possible that HN readers in SF or wherever experience higher inflation than the CPI calculates. It could even be that most people experience above-average inflation, because there are places with relatively low population but very low, relative, inflation dragging the averages down. If that is the case, it might be possible to alter how geographic aggregation works to calculate a CPI-for-median-consumer that better captures the common experience. This might be better for some policy purposes, as well.

gowld 5y ago

(2013)

jjgreen 5y ago

Modern calculations of inflation use the geometric mean of price increases, while previously it was the arithmetic mean. The reason is exactly the geometric-arithmetic mean inequality [1]. This is the largest theft ever made, and no-one knows or wants to know about it. [1] https://en.wikipedia.org/wiki/Inequality_of_arithmetic_and_geometric_means https://en.wikipedia.org/wiki/Inequality_of_arithmetic_and_g...

only_as_i_fall 5y ago

If the goal of cpi is to reflect what consumers feel the inflation rate is regardless of what any consistent measurement scheme says, the BLS could get rid of the pesky measurement nonsense altogether just take an annual survey. Think of the cost savings!

cecilpl2 5y ago

This guy claims inflation in the 8-10% range for the last 15 years, which translates to a 3-4x price increase since 2006. Anecdotally, having tracked all my expenses since becoming an adult in 2006, in my area I have noticed: * Food prices 1-1.5x (unchanged to 50% higher or so). * Rent prices ~2x. * House prices ~4x. * Gas prices 1.5x * Transit prices 1.5x * Alcohol prices 1-1.2x * Entertainment prices 1-1.5x * Newest iPhone 1.8x * Newest Playstation 1x The housing crisis stands out as an obvious outlier, but most of this is consistent with inflation in the 2-3% range.

klipklop 5y ago
Food prices are hard to notice because often instead of raising the price they make the package smaller. So on top of your 50% price increase you might get slightly less food for the dollar. I find it interesting that the PlayStation stayed rather flat, but the iPhone went up so much over time. 8-10% inflation does not sound like it's true, but it's certainly higher than the CPI suggests.
- johnsimer 5y ago
  Based on OP's detailed-orientedness, I'd assume he was tracking his total monthly food expenses.
  - klipklop 5y ago
    I understand that, but if a container of food shrinks by an ounce or two over time most won't buy an entire extra one to make up the difference. If you could buy all food by weight this would be easier to notice and make an apples to apples comparison. Hat's off to the parent comment if they even tracked it down to the exact amount of food and kept it consistent for years. Most people set a budget of $X dollars of food that is rather generous and if they get slightly less food they don't notice because they are already buying an excess of calories most of the time.
    - Negitivefrags 5y ago

abeppu 5y ago

> Anecdotal evidence and occasional surveys have indicated that the general public believes inflation is running well above official reporting, and that public perceptions tend to mirror the inflation experience that once was reflected in the government’s formal CPI reporting. ... but one might reasonably suppose that part of the public's supposed perception of inflation influenced not just by actual prices but by the way we talk about prices and inflation? I.e. some people that keep talking about inflation being "actually" higher than measured contribute to people believing that inflation is higher.