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Basket of things with a vastly oversized share of cheap plastic crap made in East Asian sweatshops and or unrealistic substitutes. If 95% of Americans see a "pe

Basket of things with a vastly oversized share of cheap plastic crap made in East Asian sweatshops and or unrealistic substitutes. If 95% of Americans see a "personal inflation rate" significantly larger what the government claims, perhaps the government methodology is not particularly informative? This is the point where the burden on proof lays with those that claim the government methodology is relevant: What is the "basket of things" composition and how many Americans have a spending profile anywhere near that?

seanhunter 5y ago
This is a valid criticism of the methodology and if you look at a sibling of your comment, someone has posted a great resource that discusses some of this in depth. There are a lot of critics of CPI who feel it is manipulated by the BLS either intentionally or unintentionally. The methodology was also changed from being a "Cost of Goods Index" (literally the basket I described above) to a "Cost of Living Index" (which is intended to reflect the cost of maintaining a constant standard of living over time allowing substitutions in the basket but still suffering from the problem I describe above where your personal standard of living derives from the goods and services that you consume and therefore will differ from the index composition), and there are entrenched proponents of both the COGI and COLI methodologies. I'm not an economist, but one fundamental problem with any consumer index (as far as I can see) is that as you become richer in absolute terms the marginal utility of any additional dollar goes down (eg your life doesn't change that much if you upgrade your already expensive phone but it changes a heck of a lot if you can't afford to buy enough food) and therefore poorer people experience far more harm from inflation than richer people. Not sure any index ever captures that effect adequately.
- jolux 5y ago
  That harm does not capture the reduction in debt caused by inflation though. Inflation benefits debtors over creditors, even if it also effectively lowers wages.
  - seanhunter 5y ago
    That's true although if you're spending all of your income on debt service and basic living costs, then reducing the real value of the nominal of your debt doesn't in fact increase your standard of living at all. Theoretically you're better off, but all of your income still goes on debt service and basic living costs. The basic living costs have gone up in nominal terms while the debt service is still the same. It's depreciated in real value but the nominal is still the same.
    - dannyw 5y ago
      On a statistical basis, the poor holds more debt. From that basis, inflation is good. A lot of people don't realise inflation is essentially a stealth cash wealth tax. It applies to savings, debt, dollar-denominated contracts, etc.
      - webreac 5y ago
        Inflation is good only for long term debt.
      - kzrdude 5y ago
        Inflation is "progressive" in this sense, however everyone wealthy would hold mostly assets, not cash.
        imtringued 5y ago
        They still hold a decent amount of cash as a percentage of their portfolio. 10% of a million dollar portfolio is still $100k which is more than the average joe has. He would use that money to buy a house instead of letting it sit around. Yes, bigger down payments suck but that is mostly a zoning/housing supply issue.
        sokoloff 5y ago
        I’d guess that many (perhaps most) wealthy households hold far more dollar-denominated debt in their real-estate and business interests than they do cash.
- jfoutz 5y ago
  I'm not an economist, I'm far from it. It sure seems like the big three these days are housing, food, and gas. Housing is complicated, because it's less elastic. Moving sucks, is expensive and kind of emotional. It's sorta sticky because it's such an ordeal, so (I think) there's some scalping, charging a bit more because making a switch is just a pain in the ass. Food is weird. if you can put together a hotplate and a sink, food can be relativly inexpensive, and tasty, but time consuming. If you can't it's pretty ugly. Personally, I'd probably just go with multivitamins and beer. Dual duty as calories and entertainment. That's a disaster long term though. Gasoline sucks because it's a magnifying effect. Take a bag of rice. the rice gets trucked somewhere to get packaged. the bag gets trucked from a factory, the plastic gets trucked to the factory. Every step has a transportation cost, and it compounds. I'm not rich. I could take a long break from work if I needed to, but I gotta work. I'm very lucky to be where I am. CPI makes a lot of sense for me. I think it's not so great because a cop and a teacher couple with no kids, totally reasonable professions, damn near a Rockwell painting, struggle. I don't think it'll ever be easy for everyone. but damn. does it have to be so damn hard at the bottom? I think the CPI doesn't really work out for the bottom N% and I'm not really sure of the value of N. I hope N is still kinda small, because if N gets big, things get really ugly for everyone. I dunno. CPI is a metric. it has a meaning. mean median and mode have meaning, but they don't tell the whole story. I think CPI highlights some things, but don't think for a second it's the whole story.
dcposch 5y ago
The Economist publishes a fun and simple metric called the Big Mac Index. They present it as a way of looking at forex rates. If 1 USD buys you 1 swiss franc, but a Big Mac costs $5 here and 7 CHF there, then maybe the franc is overvalued. In any case you lose McDonald's purchasing power by converting. But you could just as easily use it for inflation. Big Macs are a stable product. A Big Mac sold in 1985 is very similar to one sold yesterday. Also, it includes a good mix of basic inputs. Land rents, transport costs, labor, and food ingredients. Here's the raw data. https://raw.githubusercontent.com/TheEconomist/big-mac-data/master/source-data/big-mac-source-data.csv https://raw.githubusercontent.com/TheEconomist/big-mac-data/... In the US, a Big Mac cost $2.54 in 2001 and $5.65 in 2021. That works out to 4.0% annual inflation. https://www.google.com/search?q=(5.65%2F2.54)%5E(1%2F20)&oq=(5.65%2F2.54)%5E(1%2F20) https://www.google.com/search?q=(5.65%2F2.54)%5E(1%2F20)&oq=... The official numbers were 2% that entire time. Those come from a complex calculation using an always-shifting basket.
- Galaxeblaffer 5y ago
  The Big Mac index is pretty stupid though, since the ingredients in various countries are different and not sourced from the same place. Here en Europe McD tries to be somewhat middle class while I'm the us it's absolute trash.
  - herbst 5y ago
    Was going to say that. They have a green logo and regularly claim some of their products are hyper local now here in CH. I doubt they have to do this in many other countries. Other than that price differences in food between $ and CHF are likely mostly explained because work hours simply cost a lot more around here.
    - ehnto 5y ago
      > I doubt they have to do this in many other countries. Not sure why you would think that. McDonalds is famous for catering it's menu and service to it's locale. In Australia they were required to serve real chicken in their nuggets, and they're always advertising that they use locally sourced beef for their burgers. They also rebranded in a sense to upmarket themselves, and started selling salads, cakes and coffees in order to sneak a foot into the Australian cafe scene.
throw0101a 5y ago
> What is the "basket of things" composition and how many Americans have a spending profile anywhere near that? Well: > 2. How is the CPI market basket determined? > The CPI market basket is developed from detailed expenditure information provided by families and individuals on what they actually bought. There is a time lag between the expenditure survey and its use in the CPI. For example, CPI data in 2020 and 2021 was based on data collected from the Consumer Expenditure Surveys for 2017 and 2018. In each of those years, about 24,000 consumers from around the country provided information each quarter on their spending habits in the interview survey. To collect information on frequently purchased items, such as food and personal care products, another 12,000 consumers in each of these years kept diaries listing everything they bought during a 2-week period. > Over the 2 year period, then, expenditure information came from approximately 24,000 weekly diaries and 48,000 quarterly interviews used to determine the importance, or weight, of the item categories in the CPI index structure. * https://www.bls.gov/cpi/questions-and-answers.htm#Question_2 https://www.bls.gov/cpi/questions-and-answers.htm#Question_2 The BLS' CPI isn't written on some set of secret scrolls. If you're curious about how it is configured just look it up.
op00to 5y ago
You could … you know Google it yourself. https://www.bls.gov/cpi/methods-overview.htm https://www.bls.gov/cpi/methods-overview.htm Ever consider you are special? If you’re posting on this site, chances are you are more educated, richer, and better employed than most of your compatriots in whatever country you’re in. Of course luxury goods inflate faster. We can afford it.
ChrisLomont 5y ago
>Basket of things with a vastly oversized share of cheap plastic crap made The "basket of things" is made from the ratios of things consumers buy. BLS explains the methodology and lists the basket, and how it evolves as people buy less horse carriages and more cars, less giant radios and more iPhones, and so on. Making a basket that better represents inflation would be worth a lot of money, and a lot of groups try, but none really do any better than the BLS. For example, the Billion Prices Project out of MIT tracks a vastly larger number of things, but ends up with the same inflation rates http://www.thebillionpricesproject.com/ http://www.thebillionpricesproject.com/
long_time_gone 5y ago
> What is the "basket of things" composition and how many Americans have a spending profile anywhere near that? The BLS isn’t hiding this information, it’s publicly available. The burden of proof would be on you to provide research on why that methodology is incorrect. https://www.bls.gov/news.release/cpi.nr0.htm https://www.bls.gov/news.release/cpi.nr0.htm > The CPIs are based on prices of food, clothing, shelter, fuels, transportation, doctors’ and dentists’ services, drugs, and other goods and services that people buy for day-to-day living. Prices are collected each month in 75 urban areas across the country from about 6,000 housing units and approximately 22,000 retail establishments (department stores, supermarkets, hospitals, filling stations, and other types of stores and service establishments). All taxes directly associated with the purchase and use of items are included in the index. Prices of fuels and a few other items are obtained every month in all 75 locations. Prices of most other commodities and services are collected every month in the three largest geographic areas and every other month in other areas. Prices of most goods and services are obtained by personal visits or telephone calls by the Bureau’s trained representatives.
- caeril 5y ago
  > why that methodology is incorrect A lot of people take issue with hedonic adjustments, substitution threshold, etc - but the specific methdology used is far less important than the fact that they're simply lying about the data. For one example, the obvious elephant in the room is the shelter category. In the last year, rents are up 12%[1], and home prices have soared nearly 20%[2] Yet, from your own source, the BLS is claiming 3.2% for the shelter category. It's not so much that the methodology is wrong (although that argument could be made as well), but that they're flat out lying. And then you have to contend with the Gell-Mann amnesia effect: if they're lying to your face about the shelter category, what makes you think the data in any of the other categories, for which you have less third party data to corroborate, are not also completely fabricated? [1] https://www.apartmentlist.com/research/national-rent-data https://www.apartmentlist.com/research/national-rent-data [2] https://fred.stlouisfed.org/series/CSUSHPISA https://fred.stlouisfed.org/series/CSUSHPISA
  - AlexandrB 5y ago

seanhunter 5y ago

This is a valid criticism of the methodology and if you look at a sibling of your comment, someone has posted a great resource that discusses some of this in depth. There are a lot of critics of CPI who feel it is manipulated by the BLS either intentionally or unintentionally. The methodology was also changed from being a "Cost of Goods Index" (literally the basket I described above) to a "Cost of Living Index" (which is intended to reflect the cost of maintaining a constant standard of living over time allowing substitutions in the basket but still suffering from the problem I describe above where your personal standard of living derives from the goods and services that you consume and therefore will differ from the index composition), and there are entrenched proponents of both the COGI and COLI methodologies. I'm not an economist, but one fundamental problem with any consumer index (as far as I can see) is that as you become richer in absolute terms the marginal utility of any additional dollar goes down (eg your life doesn't change that much if you upgrade your already expensive phone but it changes a heck of a lot if you can't afford to buy enough food) and therefore poorer people experience far more harm from inflation than richer people. Not sure any index ever captures that effect adequately.

jolux 5y ago
That harm does not capture the reduction in debt caused by inflation though. Inflation benefits debtors over creditors, even if it also effectively lowers wages.
- seanhunter 5y ago
  That's true although if you're spending all of your income on debt service and basic living costs, then reducing the real value of the nominal of your debt doesn't in fact increase your standard of living at all. Theoretically you're better off, but all of your income still goes on debt service and basic living costs. The basic living costs have gone up in nominal terms while the debt service is still the same. It's depreciated in real value but the nominal is still the same.
  - dannyw 5y ago
    On a statistical basis, the poor holds more debt. From that basis, inflation is good. A lot of people don't realise inflation is essentially a stealth cash wealth tax. It applies to savings, debt, dollar-denominated contracts, etc.
    - webreac 5y ago
      Inflation is good only for long term debt.
    - kzrdude 5y ago
      Inflation is "progressive" in this sense, however everyone wealthy would hold mostly assets, not cash.
      - imtringued 5y ago
        They still hold a decent amount of cash as a percentage of their portfolio. 10% of a million dollar portfolio is still $100k which is more than the average joe has. He would use that money to buy a house instead of letting it sit around. Yes, bigger down payments suck but that is mostly a zoning/housing supply issue.
        sokoloff 5y ago
        I’d guess that many (perhaps most) wealthy households hold far more dollar-denominated debt in their real-estate and business interests than they do cash.
jfoutz 5y ago
I'm not an economist, I'm far from it. It sure seems like the big three these days are housing, food, and gas. Housing is complicated, because it's less elastic. Moving sucks, is expensive and kind of emotional. It's sorta sticky because it's such an ordeal, so (I think) there's some scalping, charging a bit more because making a switch is just a pain in the ass. Food is weird. if you can put together a hotplate and a sink, food can be relativly inexpensive, and tasty, but time consuming. If you can't it's pretty ugly. Personally, I'd probably just go with multivitamins and beer. Dual duty as calories and entertainment. That's a disaster long term though. Gasoline sucks because it's a magnifying effect. Take a bag of rice. the rice gets trucked somewhere to get packaged. the bag gets trucked from a factory, the plastic gets trucked to the factory. Every step has a transportation cost, and it compounds. I'm not rich. I could take a long break from work if I needed to, but I gotta work. I'm very lucky to be where I am. CPI makes a lot of sense for me. I think it's not so great because a cop and a teacher couple with no kids, totally reasonable professions, damn near a Rockwell painting, struggle. I don't think it'll ever be easy for everyone. but damn. does it have to be so damn hard at the bottom? I think the CPI doesn't really work out for the bottom N% and I'm not really sure of the value of N. I hope N is still kinda small, because if N gets big, things get really ugly for everyone. I dunno. CPI is a metric. it has a meaning. mean median and mode have meaning, but they don't tell the whole story. I think CPI highlights some things, but don't think for a second it's the whole story.

dcposch 5y ago

The Economist publishes a fun and simple metric called the Big Mac Index. They present it as a way of looking at forex rates. If 1 USD buys you 1 swiss franc, but a Big Mac costs $5 here and 7 CHF there, then maybe the franc is overvalued. In any case you lose McDonald's purchasing power by converting. But you could just as easily use it for inflation. Big Macs are a stable product. A Big Mac sold in 1985 is very similar to one sold yesterday. Also, it includes a good mix of basic inputs. Land rents, transport costs, labor, and food ingredients. Here's the raw data. https://raw.githubusercontent.com/TheEconomist/big-mac-data/master/source-data/big-mac-source-data.csv https://raw.githubusercontent.com/TheEconomist/big-mac-data/... In the US, a Big Mac cost $2.54 in 2001 and $5.65 in 2021. That works out to 4.0% annual inflation. https://www.google.com/search?q=(5.65%2F2.54)%5E(1%2F20)&oq=(5.65%2F2.54)%5E(1%2F20) https://www.google.com/search?q=(5.65%2F2.54)%5E(1%2F20)&oq=... The official numbers were 2% that entire time. Those come from a complex calculation using an always-shifting basket.

Galaxeblaffer 5y ago
The Big Mac index is pretty stupid though, since the ingredients in various countries are different and not sourced from the same place. Here en Europe McD tries to be somewhat middle class while I'm the us it's absolute trash.
- herbst 5y ago
  Was going to say that. They have a green logo and regularly claim some of their products are hyper local now here in CH. I doubt they have to do this in many other countries. Other than that price differences in food between $ and CHF are likely mostly explained because work hours simply cost a lot more around here.
  - ehnto 5y ago
    > I doubt they have to do this in many other countries. Not sure why you would think that. McDonalds is famous for catering it's menu and service to it's locale. In Australia they were required to serve real chicken in their nuggets, and they're always advertising that they use locally sourced beef for their burgers. They also rebranded in a sense to upmarket themselves, and started selling salads, cakes and coffees in order to sneak a foot into the Australian cafe scene.

throw0101a 5y ago

> What is the "basket of things" composition and how many Americans have a spending profile anywhere near that? Well: > 2. How is the CPI market basket determined? > The CPI market basket is developed from detailed expenditure information provided by families and individuals on what they actually bought. There is a time lag between the expenditure survey and its use in the CPI. For example, CPI data in 2020 and 2021 was based on data collected from the Consumer Expenditure Surveys for 2017 and 2018. In each of those years, about 24,000 consumers from around the country provided information each quarter on their spending habits in the interview survey. To collect information on frequently purchased items, such as food and personal care products, another 12,000 consumers in each of these years kept diaries listing everything they bought during a 2-week period. > Over the 2 year period, then, expenditure information came from approximately 24,000 weekly diaries and 48,000 quarterly interviews used to determine the importance, or weight, of the item categories in the CPI index structure. * https://www.bls.gov/cpi/questions-and-answers.htm#Question_2 https://www.bls.gov/cpi/questions-and-answers.htm#Question_2 The BLS' CPI isn't written on some set of secret scrolls. If you're curious about how it is configured just look it up.

op00to 5y ago

You could … you know Google it yourself. https://www.bls.gov/cpi/methods-overview.htm https://www.bls.gov/cpi/methods-overview.htm Ever consider you are special? If you’re posting on this site, chances are you are more educated, richer, and better employed than most of your compatriots in whatever country you’re in. Of course luxury goods inflate faster. We can afford it.

ChrisLomont 5y ago

>Basket of things with a vastly oversized share of cheap plastic crap made The "basket of things" is made from the ratios of things consumers buy. BLS explains the methodology and lists the basket, and how it evolves as people buy less horse carriages and more cars, less giant radios and more iPhones, and so on. Making a basket that better represents inflation would be worth a lot of money, and a lot of groups try, but none really do any better than the BLS. For example, the Billion Prices Project out of MIT tracks a vastly larger number of things, but ends up with the same inflation rates http://www.thebillionpricesproject.com/ http://www.thebillionpricesproject.com/

long_time_gone 5y ago

> What is the "basket of things" composition and how many Americans have a spending profile anywhere near that? The BLS isn’t hiding this information, it’s publicly available. The burden of proof would be on you to provide research on why that methodology is incorrect. https://www.bls.gov/news.release/cpi.nr0.htm https://www.bls.gov/news.release/cpi.nr0.htm > The CPIs are based on prices of food, clothing, shelter, fuels, transportation, doctors’ and dentists’ services, drugs, and other goods and services that people buy for day-to-day living. Prices are collected each month in 75 urban areas across the country from about 6,000 housing units and approximately 22,000 retail establishments (department stores, supermarkets, hospitals, filling stations, and other types of stores and service establishments). All taxes directly associated with the purchase and use of items are included in the index. Prices of fuels and a few other items are obtained every month in all 75 locations. Prices of most other commodities and services are collected every month in the three largest geographic areas and every other month in other areas. Prices of most goods and services are obtained by personal visits or telephone calls by the Bureau’s trained representatives.

caeril 5y ago
> why that methodology is incorrect A lot of people take issue with hedonic adjustments, substitution threshold, etc - but the specific methdology used is far less important than the fact that they're simply lying about the data. For one example, the obvious elephant in the room is the shelter category. In the last year, rents are up 12%[1], and home prices have soared nearly 20%[2] Yet, from your own source, the BLS is claiming 3.2% for the shelter category. It's not so much that the methodology is wrong (although that argument could be made as well), but that they're flat out lying. And then you have to contend with the Gell-Mann amnesia effect: if they're lying to your face about the shelter category, what makes you think the data in any of the other categories, for which you have less third party data to corroborate, are not also completely fabricated? [1] https://www.apartmentlist.com/research/national-rent-data https://www.apartmentlist.com/research/national-rent-data [2] https://fred.stlouisfed.org/series/CSUSHPISA https://fred.stlouisfed.org/series/CSUSHPISA
- AlexandrB 5y ago