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The Fed massages the inflation rate by throwing out "extreme" deviations. > Mr. Powell used a gauge from the Dallas Fed that throws out the top 31% and bottom

• nuerow 5y ago
  > The Fed massages the inflation rate by throwing out "extreme" deviations. The rationale is valid though. Price-conscious consumers would simply switch brands, stores, or even go for substitute goods if the price of a particular product they chose happened to skyrocket for no reason while the price of all other alternatives barely changed.
  • angelzen 5y ago
    It's not valid though. Inflation driven substitution means lower quality. You used to barbecue steaks every weekend. Now you can only afford bologna. You used to wear leather shoes. Now you can only afford plastic crocs. Etc, etc, etc.
    • nuerow 5y ago
      > It's not valid though. Inflation driven substitution means lower quality. It really is valid. Not only is it valid, it's precisely the whole point of tracking a consumer price index. The goal of CPI is to track the prices of goods and services consumed by the population, not brand- or product-loyalty. When prices go significantly up, it's a known fact that consumers react by seeking affordable alternatives, or in the case of luxury items simply going without.
      • desmosxxx 5y ago
        right, so CPI is not a good measure for actual inflation
        • nuerow 5y ago
          > right, so CPI is not a good measure for actual inflation No, quite the opposite in fact. CPI is a accurate measure of inflation as it tracks how much the real-world consumer prices vary where it really matters: real-world consumer expenses. Perhaps the mistake you're making is assuming wrongly that demand for specific brands/makes/models is perfectly inelastic and consumers do not change their consumption patterns at all even if their price increases so much that they can no longer afford them. Meanwhile, if a low/middle class family sees the price of stake skyrocket, you can bet they'll start to switch a few meals to hamburguers or hotdogs.
          • angelzen 5y ago
            The argument is that there is no inflation if people can't afford stuff, because they'll just be priced out and forced to not buy stuff anymore, thus their expenses will be stable. Duh. Inflation is not how much money people spend, inflation is ever increasing prices leading to people affording less and less stuff with their rapidly depreciating money.
            • imtringued 5y ago
              If inflation happens and food becomes more expensive and you keep buying the same food you have less money left over for non food products. The CPI will adjust and weight your food expenses more which will raise the CPI much faster than if it also looked at fitness equipment that went down in price because you didn't buy it because food was too expensive. If food gets more expensive and people don't spend more on food then inflation didn't happen by definition. They still spend the exact same amount after all, they just got different food instead.
              • 5y ago
    • ashtonkem 5y ago
      Depends on the degree and the duration. If the local slaughter house has to shut down because of Covid and steaks triple in price, does it really make sense to indicate that inflation is ~50% (number made up) over my basket of goods? Or does it make sense to acknowledge that I’ll shift over to chicken or no meat for a few weeks until prices return? Similarly, if the price of beef permanently puts it out of reach for my family, then I absolutely would call foul on substituting it from my basket of goods. That would be inflation, and excluding beef would be gaming the system. The problem is that determining between these cases is very hard to do in the moment, and only becomes obvious in hindsight.
  • skzv 5y ago
    Yet it is so far from rigorous which makes it ripe for abuse. The "extreme" deviations are defined arbitrarily, evidenced by the fact that different offices of the Fed come up with different inflation numbers. Hence the chairman can choose one which is conveniently on target.