8 ms·

It's funny to me economists think they can measure inflation/deflation down to a single digit percentile with any level of certainty.

bigbillheck 5y ago
The thing that BLS measures is measured precisely and accurately. The question is how well this tracks with what gets called 'inflation'. It's like IQ tests. They're measuring something that may or may not be what some people think it measures.
the_gastropod 5y ago
Care to elaborate?
- ErikVandeWater 5y ago
  Sure. For example, healthcare is included in CPI. Let's say a new surgical technique is invented that reduces the chance of dying during a kidney transplant by 20%, and is adopted as a standard practice. The price of kidney transplant surgery does not change. By how much has the price of a kidney transplant deflated, since you are now getting better bang for your buck?
  - rowanajmarshall 5y ago
    That isn't what inflation measures. That's what life expectancy measures.
    - tharne 5y ago
      No, this has to do with prices and values. If you're getting a higher quality of surgery for the same price as before, the cost of a surgery has effectively gone down.
      - rubyn00bie 5y ago
        You’re 100% wrong here and very loud about how wrong you are. Why? Why are you so vocal about something you’re not educated about (economics)?
        ajnin 5y ago
        Here's another example that you might be more familiar with : let's say that year N there is a specific laptop available for sale for $1200. Year N+3 you can still find for sale that laptop which still costs $1200 but which has improved guts and is twice as fast as before. Has the price of laptops stayed the same or gone down ? From the point of view of CPI calculation, it has gone down.
  - tharne 5y ago
    And then there's the behavioral shifts that take place too. If the price of socks goes up by 40%, some folks put off buying new socks or start mending the old socks they have, taking pressure off the price of socks through lower demand. So in reality, the inflation in the price of socks would be/is more than 40% save for the fact that people are now wearing older socks on average. There's also shadow inflation, where you pay the same as before, but get less, or pay in other ways. You can see this with hotels for instance. The price of a room hasn't changed, but many hotels have reduced the number of services that are included like the frequency of cleaning, free breakfast, etc. So you're paying the same amount for your room, but you're getting less value in return. How does this get reflected in the CPI?
    - gruez 5y ago
      > So in reality, the inflation in the price of socks would be/is more than 40% save for the fact that people are now wearing older socks on average. And this is bad... how? I'm not sure how presuming the opposite (ie. demand stays the same) makes more sense. For instance, during the 1973 oil crisis, supply was literally lower than demand. If we expected demand to stay the same (for whatever reason), wouldn't the price of oil go to infinity? >How does this get reflected in the CPI? hedonic and/or quality adjustments are done for certain CPI categories.
    - dghlsakjg 5y ago
      Go read the methodology for CPI calculation. They tell you exactly what they are buying and do, in fact, adjust for qualitative differences like reduced service at a hotel. The entire point of the CPI is that it is an exact representation of what buying the exact same set of things exactly one year of part will cost. The socks are irrelevant as far as CPI is concerned since it concerns itself with pricing only, and not the knock on effects of reductions in demand due to pricing. There are teams of PHDs in every major country in the world that only work on this one number, their methodology is then picked apart by more teams of phds in academia who produce alternate methodologies and slightly different numbers. Do you really think that in the past 100 years of doing this work that they haven’t come up with ways of adjusting for the fact that Motel 8 stopped serving waffles?
  - snowwrestler 5y ago
    Inflation does not measure value. It only measures price.
    - DSMan195276 5y ago
      The two are linked though, because the value of a particular item is not a constant. If the quality of an item changes then you would not expect the price to stay the same, but that does not mean inflation is taking place. With that, the price may stay the same but the quality drops, which is functionally the same thing as inflation but the price itself did not change. FWIW the CPI does attempt to measure this: https://www.bls.gov/cpi/quality-adjustment/questions-and-answers.htm https://www.bls.gov/cpi/quality-adjustment/questions-and-ans... > To measure price change accurately, the CPI must be able to distinguish the portion of price change due to this quality change.
syki 5y ago
The BLS doesn’t hide its methodology and it calculates more than one measure of inflation. Their attempt is to measure it in a meaningful way that is useful for policymakers and others. They don’t claim to know the “exact” value. You can read about the various measures and methodologies here: https://www.bls.gov/bls/inflation.htm https://www.bls.gov/bls/inflation.htm
- ErikVandeWater 5y ago
  I didn't use the word "exact." But regardless, the way CPI measures are used by policymakers and others assume they are highly accurate. Otherwise a 2% increase in the CPI would be meaningless, since there could either be inflation or deflation.
  - syki 5y ago
    They state how they measure it and what they do to collect their data. Nothing more and nothing less than that. How people use it or interpret it is up to that person. Everyone should keep in mind that inflation for each individual is different because we all consume different things. The BLS calculation is a weighted average of prices. It’s their best guess and they don’t hide how they make the guess. What is wrong with their methodology? How should it change? Have you read about the different measure they use and how they make their calculations? Do you think they shouldn’t measure it at all? We’ve all experienced a general rise in prices the past year and have a sense that something abnormal is occurring. BLS’s calculation confirms this. Our sense of abnormality is confirmed by the data.
tharne 5y ago
I've noticed that too. It's as if they all skipped the first month of high school science class.
- syki 5y ago
  Which is more likely to be true: 1. The experts act as if they skipped the first month of high school science class. 2. You don’t understand the topic well enough.
  - mensetmanusman 5y ago
    The experts know that the average person mentally skipped STEM classes in high school, and that they can therefore follow politically viable discussions on ‘inflation’ which is an entirely political # because it is preference based (politics is preference). E.g. we should have seen headlines saying inflation has been increasing dramatically over the last few years as housing prices have shot up, but conveniently for politicians, housing prices were not included in the ‘basket’
    - syki 5y ago
      The methodology used by BLS is publicized and you can know what is and is not included in the calculation. There is no conspiracy to hide this information. If housing costs are what you want to know about then don’t use BLS’ calculation. There are agencies that track rent and housing prices.
    - dghlsakjg 5y ago
      The cost of real property aren’t included because that is considered a capital investment in the USA BLS numbers. A house is not an item that is consumed, since you can generally sell it for more when you’re done. It would be like including the cost of stocks and bonds in inflation. The cost of housing, not houses, is the biggest single component of the CPI. That means that the cost of rent, or rent equivalent, is very much factored in. We very much do have headlines about the crazy costs of houses. But housing costs, that is the price to consume one month of housing service (aka rent) are a different thing.
deleted 5y ago
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deleted 5y ago
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EForEndeavour 5y ago
How governments actually measure and compute inflation is a complex and fascinating topic on its own. Here's a great overview of how it's done in the USA: https://www.brookings.edu/blog/up-front/2021/06/28/how-does-the-government-measure-inflation/ https://www.brookings.edu/blog/up-front/2021/06/28/how-does-... Basically, each month, the Bureau of Labor Statistics (BLS) hires people to manually look up the price (online, in person, of by telephone) of 80 thousand different items, then computes a weighted average price change. The weights come from the Consumer Expenditures Survey (conducted by the Census Bureau on behalf of the BLS) of 8 thousand households to collect data on how much they spend on what.
ThunderSizzle 5y ago
It really should be: Is inflation negative? (will never be true anymore) Is inflation 0-5%? (somewhat acceptable) Is inflation 5-10%? (dangerous level) Is inflation 10-100%? (critical level)
- rubyn00bie 5y ago
  > Is inflation negative? This would be strictly worse for the United States than any of the other options. It would result in hoarding and the cessation of spending which would likely destroy the economy. Please don’t post stuff that seems like common sense but is in fact not sensical at all or at worst a complete fabrication which I’m guessing this is by the numbers.
  - colinmhayes 5y ago
    > This would be strictly worse for the United States than any of the other options. Probably why he said it will never be true? The fed would never allow deflation.
  - ThunderSizzle 5y ago
    I didnt say "inflation should be negative". I offered a suggested scale of precision for inflation. One of those is negative inflation, since it can technically occur. I did not say it should or would.

bigbillheck 5y ago

The thing that BLS measures is measured precisely and accurately. The question is how well this tracks with what gets called 'inflation'. It's like IQ tests. They're measuring something that may or may not be what some people think it measures.

the_gastropod 5y ago

Care to elaborate?

ErikVandeWater 5y ago
Sure. For example, healthcare is included in CPI. Let's say a new surgical technique is invented that reduces the chance of dying during a kidney transplant by 20%, and is adopted as a standard practice. The price of kidney transplant surgery does not change. By how much has the price of a kidney transplant deflated, since you are now getting better bang for your buck?
- rowanajmarshall 5y ago
  That isn't what inflation measures. That's what life expectancy measures.
  - tharne 5y ago
    No, this has to do with prices and values. If you're getting a higher quality of surgery for the same price as before, the cost of a surgery has effectively gone down.
    - rubyn00bie 5y ago
      You’re 100% wrong here and very loud about how wrong you are. Why? Why are you so vocal about something you’re not educated about (economics)?
      - ajnin 5y ago
        Here's another example that you might be more familiar with : let's say that year N there is a specific laptop available for sale for $1200. Year N+3 you can still find for sale that laptop which still costs $1200 but which has improved guts and is twice as fast as before. Has the price of laptops stayed the same or gone down ? From the point of view of CPI calculation, it has gone down.
- tharne 5y ago
  And then there's the behavioral shifts that take place too. If the price of socks goes up by 40%, some folks put off buying new socks or start mending the old socks they have, taking pressure off the price of socks through lower demand. So in reality, the inflation in the price of socks would be/is more than 40% save for the fact that people are now wearing older socks on average. There's also shadow inflation, where you pay the same as before, but get less, or pay in other ways. You can see this with hotels for instance. The price of a room hasn't changed, but many hotels have reduced the number of services that are included like the frequency of cleaning, free breakfast, etc. So you're paying the same amount for your room, but you're getting less value in return. How does this get reflected in the CPI?
  - gruez 5y ago
    > So in reality, the inflation in the price of socks would be/is more than 40% save for the fact that people are now wearing older socks on average. And this is bad... how? I'm not sure how presuming the opposite (ie. demand stays the same) makes more sense. For instance, during the 1973 oil crisis, supply was literally lower than demand. If we expected demand to stay the same (for whatever reason), wouldn't the price of oil go to infinity? >How does this get reflected in the CPI? hedonic and/or quality adjustments are done for certain CPI categories.
  - dghlsakjg 5y ago
    Go read the methodology for CPI calculation. They tell you exactly what they are buying and do, in fact, adjust for qualitative differences like reduced service at a hotel. The entire point of the CPI is that it is an exact representation of what buying the exact same set of things exactly one year of part will cost. The socks are irrelevant as far as CPI is concerned since it concerns itself with pricing only, and not the knock on effects of reductions in demand due to pricing. There are teams of PHDs in every major country in the world that only work on this one number, their methodology is then picked apart by more teams of phds in academia who produce alternate methodologies and slightly different numbers. Do you really think that in the past 100 years of doing this work that they haven’t come up with ways of adjusting for the fact that Motel 8 stopped serving waffles?
- snowwrestler 5y ago
  Inflation does not measure value. It only measures price.
  - DSMan195276 5y ago
    The two are linked though, because the value of a particular item is not a constant. If the quality of an item changes then you would not expect the price to stay the same, but that does not mean inflation is taking place. With that, the price may stay the same but the quality drops, which is functionally the same thing as inflation but the price itself did not change. FWIW the CPI does attempt to measure this: https://www.bls.gov/cpi/quality-adjustment/questions-and-answers.htm https://www.bls.gov/cpi/quality-adjustment/questions-and-ans... > To measure price change accurately, the CPI must be able to distinguish the portion of price change due to this quality change.

syki 5y ago

The BLS doesn’t hide its methodology and it calculates more than one measure of inflation. Their attempt is to measure it in a meaningful way that is useful for policymakers and others. They don’t claim to know the “exact” value. You can read about the various measures and methodologies here: https://www.bls.gov/bls/inflation.htm https://www.bls.gov/bls/inflation.htm

ErikVandeWater 5y ago
I didn't use the word "exact." But regardless, the way CPI measures are used by policymakers and others assume they are highly accurate. Otherwise a 2% increase in the CPI would be meaningless, since there could either be inflation or deflation.
- syki 5y ago
  They state how they measure it and what they do to collect their data. Nothing more and nothing less than that. How people use it or interpret it is up to that person. Everyone should keep in mind that inflation for each individual is different because we all consume different things. The BLS calculation is a weighted average of prices. It’s their best guess and they don’t hide how they make the guess. What is wrong with their methodology? How should it change? Have you read about the different measure they use and how they make their calculations? Do you think they shouldn’t measure it at all? We’ve all experienced a general rise in prices the past year and have a sense that something abnormal is occurring. BLS’s calculation confirms this. Our sense of abnormality is confirmed by the data.

tharne 5y ago

I've noticed that too. It's as if they all skipped the first month of high school science class.

syki 5y ago
Which is more likely to be true: 1. The experts act as if they skipped the first month of high school science class. 2. You don’t understand the topic well enough.
- mensetmanusman 5y ago
  The experts know that the average person mentally skipped STEM classes in high school, and that they can therefore follow politically viable discussions on ‘inflation’ which is an entirely political # because it is preference based (politics is preference). E.g. we should have seen headlines saying inflation has been increasing dramatically over the last few years as housing prices have shot up, but conveniently for politicians, housing prices were not included in the ‘basket’
  - syki 5y ago
    The methodology used by BLS is publicized and you can know what is and is not included in the calculation. There is no conspiracy to hide this information. If housing costs are what you want to know about then don’t use BLS’ calculation. There are agencies that track rent and housing prices.
  - dghlsakjg 5y ago
    The cost of real property aren’t included because that is considered a capital investment in the USA BLS numbers. A house is not an item that is consumed, since you can generally sell it for more when you’re done. It would be like including the cost of stocks and bonds in inflation. The cost of housing, not houses, is the biggest single component of the CPI. That means that the cost of rent, or rent equivalent, is very much factored in. We very much do have headlines about the crazy costs of houses. But housing costs, that is the price to consume one month of housing service (aka rent) are a different thing.

deleted 5y ago

[deleted]

deleted 5y ago

[deleted]

EForEndeavour 5y ago

How governments actually measure and compute inflation is a complex and fascinating topic on its own. Here's a great overview of how it's done in the USA: https://www.brookings.edu/blog/up-front/2021/06/28/how-does-the-government-measure-inflation/ https://www.brookings.edu/blog/up-front/2021/06/28/how-does-... Basically, each month, the Bureau of Labor Statistics (BLS) hires people to manually look up the price (online, in person, of by telephone) of 80 thousand different items, then computes a weighted average price change. The weights come from the Consumer Expenditures Survey (conducted by the Census Bureau on behalf of the BLS) of 8 thousand households to collect data on how much they spend on what.

ThunderSizzle 5y ago

It really should be: Is inflation negative? (will never be true anymore) Is inflation 0-5%? (somewhat acceptable) Is inflation 5-10%? (dangerous level) Is inflation 10-100%? (critical level)

rubyn00bie 5y ago
> Is inflation negative? This would be strictly worse for the United States than any of the other options. It would result in hoarding and the cessation of spending which would likely destroy the economy. Please don’t post stuff that seems like common sense but is in fact not sensical at all or at worst a complete fabrication which I’m guessing this is by the numbers.
- colinmhayes 5y ago
  > This would be strictly worse for the United States than any of the other options. Probably why he said it will never be true? The fed would never allow deflation.
- ThunderSizzle 5y ago
  I didnt say "inflation should be negative". I offered a suggested scale of precision for inflation. One of those is negative inflation, since it can technically occur. I did not say it should or would.