3 ms·
I think that’s a reasonable request. Inflation rose at a 7.9% annualized rate in February. However, I’ve always been bothered by the official inflation numbers
by OrlandoHakim 5y ago
I think that’s a reasonable request. Inflation rose at a 7.9% annualized rate in February. However, I’ve always been bothered by the official inflation numbers as they use a single gameable metric (CPI) to describe a complex phenomenon.
The Consumer Price Index (CPI) uses a single number to explain a general rise in prices that affects different consumer segments very differently. For example, it uses a methodology that basically excludes house prices by instead measuring owner equivalent rent. So a 30% y/y increase in house prices is under-reported.
Also is uses a specific basket of consumer goods to measure price increases, one that largely excludes high inflation items such as energy, healthcare and higher education. If these things are important to you, your personal inflation rate is likely much higher.
Finally, the CPI is calculated using a process of hedonic adjustments - but these only work one-way. For example, if steak gets too expensive, then the CPI basket may swap out ground meat instead, but if the price of a 50” flat screen TV comes down, then it is reflected in CPI with no hedonic adjustment.
- deleted 5y ago[deleted]
- sokoloff 5y agoI think hedonic adjustments do happen in both directions in the survey-based method used. “What did you spend money on?” captures the fact that more people are prone to buy more 50” TVs when they cost 3 tanks of gas than when they used to cost 6 weeks of pay. When items purchased are judged to be of lower quality than before, they are penalized in the adjustment process just as the converse happens.
- OrlandoHakim 5y agoI was curious and from further investigation I came across this article on hedonic adjustments which goes through several examples [0] The author explains that for all practical purposes hedonic adjustments only happen in one direction and they therefore discount the corresponding price increase in the underlying good. They are manually curated and suffer from bias of the estimators. For example when airline baggage fees were added separate from ticket prices, there was no hedonic adjustment. However hedonic adjustment is used to discount the increase in the price of Honda Accords over time. The article was previously posted on HN with a healthy discussion that came to the same conclusion. [1] [0] https://www.epsilontheory.com/im-trying-to-understand-hedonic-adjustments/ https://www.epsilontheory.com/im-trying-to-understand-hedoni... [1] https://news.ycombinator.com/item?id=27114135 https://news.ycombinator.com/item?id=27114135