4 ms·

> As a result, the inflation rate each person experiences is very personalized. It's hard to agree on what "the inflation rate" is, because it depends on what y

> As a result, the inflation rate each person experiences is very personalized. It's hard to agree on what "the inflation rate" is, because it depends on what you need to buy. If you drive a lot, fuel inflation will impact you more. If you're vegetarian, meat inflation isn't going to hit your pocket book. Investopedia defines inflation as "the decline of purchasing power of a given currency over time". [0] Prices diverging is not inflation. It's reallocation of value in response to a changing world and changing perspectives. [0] - https://www.investopedia.com/terms/i/inflation.asp https://www.investopedia.com/terms/i/inflation.asp

layer8 5y ago
The question is, how do you quantitatively define "purchasing power" when prices are diverging? Is it the number of cheeseburgers you can buy? The number of TVs? The number of houses? If you take some average, the average of which set, and why?
- danuker 5y ago
  One idea is weigh by reported actual expenses in each category you're measuring. But that way, you're just measuring the trend in expenses, which should be proportional to GDP per capita. Edit: no, not all GDP is consumer spending (there is also investment, government expenses, and net exports). Here is what I think is a better CPI: Personal consumption divided by population, scaled to compare with the official CPI. https://fred.stlouisfed.org/graph/?g=MMdx https://fred.stlouisfed.org/graph/?g=MMdx Growth rates compared: https://fred.stlouisfed.org/graph/?g=MMeV https://fred.stlouisfed.org/graph/?g=MMeV
anotherman554 5y ago
I don't understand your objection or what quoting Investopedia is supposed to show? Here's a paper from the New York Fed that contains the sentence "Because the basket actually purchased by each household potentially differs from the CPIís basket, the inflation rate faced by any given household might be very different from the CPI-inflation rate." https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr173.pdf https://www.newyorkfed.org/medialibrary/media/research/staff...
BirAdam 5y ago
Investopedia is using just one type of inflation there. The truth is, money printing and/or government spending beyond tax revenue is the source of inflation. Every loan a bank makes in fractional reserve systems will be inflationary, and every time money is printed for the government it will be inflationary. Due to the cartel structure of banking in the modern world, the inflation will first hit things like stocks, bonds, land, and other asset classes. It takes time for that inflation to leak into all other things, but it does. As businesses expand, as people move, they are then forced to pay these higher prices, and this drives up the price of goods produced and bought.
- danuker 5y ago
  If inflation occurred constantly and smoothly, I would assume the relative prices stay in sync. If you see crazy swings that have occurred during the pandemic - real estate crashing in central business districts while going up for industrial areas [0] - that has nothing to do with government money printing and everything to do with pandemic restrictions. [0] - https://www.pwc.com/us/en/industries/asset-wealth-management/assets/etre2022-graphic-7-commercial-property-price-index.svg https://www.pwc.com/us/en/industries/asset-wealth-management...
  - BirAdam 5y ago
    That is true. You must keep long term in mind tho. Long term all real estate prices have gone up and up with short term crashes. This is people needing to park money, which will eventually backfire when no one can afford the prices anymore.
    - chii 5y ago
      > will eventually backfire when no one can afford the prices anymore. future people will be expected to be more productive than the past, and thus is able to afford the higher prices - at least that's the bet.

layer8 5y ago

The question is, how do you quantitatively define "purchasing power" when prices are diverging? Is it the number of cheeseburgers you can buy? The number of TVs? The number of houses? If you take some average, the average of which set, and why?

danuker 5y ago
One idea is weigh by reported actual expenses in each category you're measuring. But that way, you're just measuring the trend in expenses, which should be proportional to GDP per capita. Edit: no, not all GDP is consumer spending (there is also investment, government expenses, and net exports). Here is what I think is a better CPI: Personal consumption divided by population, scaled to compare with the official CPI. https://fred.stlouisfed.org/graph/?g=MMdx https://fred.stlouisfed.org/graph/?g=MMdx Growth rates compared: https://fred.stlouisfed.org/graph/?g=MMeV https://fred.stlouisfed.org/graph/?g=MMeV

anotherman554 5y ago

I don't understand your objection or what quoting Investopedia is supposed to show? Here's a paper from the New York Fed that contains the sentence "Because the basket actually purchased by each household potentially differs from the CPIís basket, the inflation rate faced by any given household might be very different from the CPI-inflation rate." https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr173.pdf https://www.newyorkfed.org/medialibrary/media/research/staff...

BirAdam 5y ago

Investopedia is using just one type of inflation there. The truth is, money printing and/or government spending beyond tax revenue is the source of inflation. Every loan a bank makes in fractional reserve systems will be inflationary, and every time money is printed for the government it will be inflationary. Due to the cartel structure of banking in the modern world, the inflation will first hit things like stocks, bonds, land, and other asset classes. It takes time for that inflation to leak into all other things, but it does. As businesses expand, as people move, they are then forced to pay these higher prices, and this drives up the price of goods produced and bought.

danuker 5y ago
If inflation occurred constantly and smoothly, I would assume the relative prices stay in sync. If you see crazy swings that have occurred during the pandemic - real estate crashing in central business districts while going up for industrial areas [0] - that has nothing to do with government money printing and everything to do with pandemic restrictions. [0] - https://www.pwc.com/us/en/industries/asset-wealth-management/assets/etre2022-graphic-7-commercial-property-price-index.svg https://www.pwc.com/us/en/industries/asset-wealth-management...
- BirAdam 5y ago
  That is true. You must keep long term in mind tho. Long term all real estate prices have gone up and up with short term crashes. This is people needing to park money, which will eventually backfire when no one can afford the prices anymore.
  - chii 5y ago
    > will eventually backfire when no one can afford the prices anymore. future people will be expected to be more productive than the past, and thus is able to afford the higher prices - at least that's the bet.