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For those that only read the headline, the article is much more interesting. There's a paper that recreated what the inflation rate would have been with the old

For those that only read the headline, the article is much more interesting. There's a paper that recreated what the inflation rate would have been with the old method, and it tracks the new method closely, but just has more volatility. Plus, "the government" didn't take home prices out, they just switched to a different approach to tracking them.

sokoloff 4y ago
I think the “new” (now 39 years old) method is superior overall, but I think it’s entirely factually correct that they took home prices out of the index. They did not take housing expenses out, which is what many people whose sole exposure to economics is via memes seem to think/be encouraged to think.
- lumost 4y ago
  I think the methodological flaw here is the assumption that nominal housing prices are elastic. Housing expenses fell over the last ~30 years as interest rates fell, however it's highly unlikely that the reverse will hold true to the same tune. If interest rates go to 10%, people will stop trading housing rather than take a nominal hit and be under water on a mortgage. This means that as interest rates rise, housing expenses may spike - forcing employees to demand more money. Given the size of the housing budget in many households, this effect could be surprisingly strong.
  - imtringued 4y ago
    What people don't seem to understand is that the interest rate doesn't really change your monthly payment in aggregate for housing as you are competing with other people on the monthly payment who get roughly the same interest rate. If the interest rate goes up, more of your monthly payment goes to the bank and less to the existing homeowner. This is only beneficial if you can buy a house outright with cash i.e. the rich get to buy the dip.
  - sokoloff 4y ago
    I think house sale prices are well understood to be sticky. (Sellers really hate the thought of bringing a check to the closing, so when prices are such that their equity after commission goes negative, housing listings and sales do indeed slow down.) I don't think the CPI methodology makes any assumption about elasticity of any particular component, though; it's a measurement process. People who are making interpretations or predictions based on CPI might be using faulty assumptions.
  - gedy 4y ago
    Many people will, sure. But there's many people who either need or want to sell and that puts pressure on prices. Seen this many times in past decades in California at least.
- mywittyname 4y ago
  The new methodology is clearly the better one. But headlines like this serve to reinforce the notion that somehow the "official" inflation figures are wrong. Which gives power to politicians who deliberately push this narrative; which is to day, dishonest ones. The fact is, lots people hear that "housing prices" aren't included in the CPI, and interpret that as housing costs are not included. There is no nuance for most people; for them, housing "prices" and housing "expenses" are the same thing. Normal people who are not economists or interested in economics at all are voters. It behooves people in the industry to speak clearly and plainly about these topics. Failure to do so hands that opportunity over to unscrupulous pundits who will speak plainly, but with a bend that favors their political opinions.
  - em500 4y ago
    How do you speak clearly and plainly about these topics? It's factually true housing prices aren't included in the CPI, but it's not easy to explain why and how replacing it with the somewhat abstract notion of housing services, estimated by owner equivalent rent is conceptually superior.
    - randomdata 4y ago
      I would say the easiest way to explain it is, as implied by the "C", that CPI is intended to track consumption. Houses aren't normally consumed. Your house a decade from now is expected to be, more or less, the same house you purchased originally. You expect, more or less, to be able to sell it for at least as much as you paid for it originally. Whereas a consumable good, like food, is used up once you eat it and then you have to buy it again. Housing services are more like food. They are consumed. You use it up, to some meaning of use, and then you have to eventually buy it again to use it again. However, I'm not sure that's the struggle people have. From what I observe, they question if CPI is the best metric for measuring inflation, not whether or not durable assets should be considered consumables.
      - throwaway_1928 4y ago
        > Houses aren't normally consumed. That is just a technicality. Housing is the greatest one time and recurring expense most people have and change in prices for housing has the greatest impact on their perception of how expensive things are.
- TheCoelacanth 4y ago
  The headline is technically correct, but incredibly misleading to people who don't read past the headline.
hammock 4y ago
Shadowstats.com has been tracking inflation with old methods for a long time
- staticman2 4y ago
  No it hasn't. The numbers on that site are fiction.
  - jjoonathan 4y ago
    They look like adding a constant to the official numbers, lol. There is plenty of genuine spirited debate to be had over the basket of goods. There is room for using one indicator over another for any given application. Even against that backdrop shadowstats is clearly just a grift.
    - imtringued 4y ago
      Adding a constant to exponential growth is absurd. Each 1% increase is more potent than the next.
    - mywittyname 4y ago
      > There is room for using one indicator over another for any given application. Absolutely, but this kind of debate needs to be done in good faith and with the understanding that whatever new basket of goods one comes up with is unlikely to be applicable to any more people in the economy. The basket of goods is like a a medium shirt. It's not going to fit anyone very well, and it won't fit most people at all. Swapping the shirt out for a large isn't going to improve the fit for people as a whole, it will just change the people who fit in it. The curse of dimensionality rears its head when talking about "averages" over a number of dimensions. There's not really a good methodology to distill such a complex topic down to a single figure.
- binarybits 4y ago
  OP author here. I wrote a shadowstats debunker back in November: https://fullstackeconomics.com/no-the-real-inflation-rate-isnt-14-percent/ https://fullstackeconomics.com/no-the-real-inflation-rate-is... tldr: they don't actually reconstruct the old methodology. They add a fudge factor based on how much they think the new methodology increases the inflation rate. And that estimate is based on a basic math error.
deleted 4y ago
[deleted]

sokoloff 4y ago

I think the “new” (now 39 years old) method is superior overall, but I think it’s entirely factually correct that they took home prices out of the index. They did not take housing expenses out, which is what many people whose sole exposure to economics is via memes seem to think/be encouraged to think.

lumost 4y ago
I think the methodological flaw here is the assumption that nominal housing prices are elastic. Housing expenses fell over the last ~30 years as interest rates fell, however it's highly unlikely that the reverse will hold true to the same tune. If interest rates go to 10%, people will stop trading housing rather than take a nominal hit and be under water on a mortgage. This means that as interest rates rise, housing expenses may spike - forcing employees to demand more money. Given the size of the housing budget in many households, this effect could be surprisingly strong.
- imtringued 4y ago
  What people don't seem to understand is that the interest rate doesn't really change your monthly payment in aggregate for housing as you are competing with other people on the monthly payment who get roughly the same interest rate. If the interest rate goes up, more of your monthly payment goes to the bank and less to the existing homeowner. This is only beneficial if you can buy a house outright with cash i.e. the rich get to buy the dip.
- sokoloff 4y ago
  I think house sale prices are well understood to be sticky. (Sellers really hate the thought of bringing a check to the closing, so when prices are such that their equity after commission goes negative, housing listings and sales do indeed slow down.) I don't think the CPI methodology makes any assumption about elasticity of any particular component, though; it's a measurement process. People who are making interpretations or predictions based on CPI might be using faulty assumptions.
- gedy 4y ago
  Many people will, sure. But there's many people who either need or want to sell and that puts pressure on prices. Seen this many times in past decades in California at least.
mywittyname 4y ago
The new methodology is clearly the better one. But headlines like this serve to reinforce the notion that somehow the "official" inflation figures are wrong. Which gives power to politicians who deliberately push this narrative; which is to day, dishonest ones. The fact is, lots people hear that "housing prices" aren't included in the CPI, and interpret that as housing costs are not included. There is no nuance for most people; for them, housing "prices" and housing "expenses" are the same thing. Normal people who are not economists or interested in economics at all are voters. It behooves people in the industry to speak clearly and plainly about these topics. Failure to do so hands that opportunity over to unscrupulous pundits who will speak plainly, but with a bend that favors their political opinions.
- em500 4y ago
  How do you speak clearly and plainly about these topics? It's factually true housing prices aren't included in the CPI, but it's not easy to explain why and how replacing it with the somewhat abstract notion of housing services, estimated by owner equivalent rent is conceptually superior.
  - randomdata 4y ago
    I would say the easiest way to explain it is, as implied by the "C", that CPI is intended to track consumption. Houses aren't normally consumed. Your house a decade from now is expected to be, more or less, the same house you purchased originally. You expect, more or less, to be able to sell it for at least as much as you paid for it originally. Whereas a consumable good, like food, is used up once you eat it and then you have to buy it again. Housing services are more like food. They are consumed. You use it up, to some meaning of use, and then you have to eventually buy it again to use it again. However, I'm not sure that's the struggle people have. From what I observe, they question if CPI is the best metric for measuring inflation, not whether or not durable assets should be considered consumables.
    - throwaway_1928 4y ago
      > Houses aren't normally consumed. That is just a technicality. Housing is the greatest one time and recurring expense most people have and change in prices for housing has the greatest impact on their perception of how expensive things are.
TheCoelacanth 4y ago
The headline is technically correct, but incredibly misleading to people who don't read past the headline.

hammock 4y ago

Shadowstats.com has been tracking inflation with old methods for a long time

staticman2 4y ago
No it hasn't. The numbers on that site are fiction.
- jjoonathan 4y ago
  They look like adding a constant to the official numbers, lol. There is plenty of genuine spirited debate to be had over the basket of goods. There is room for using one indicator over another for any given application. Even against that backdrop shadowstats is clearly just a grift.
  - imtringued 4y ago
    Adding a constant to exponential growth is absurd. Each 1% increase is more potent than the next.
  - mywittyname 4y ago
    > There is room for using one indicator over another for any given application. Absolutely, but this kind of debate needs to be done in good faith and with the understanding that whatever new basket of goods one comes up with is unlikely to be applicable to any more people in the economy. The basket of goods is like a a medium shirt. It's not going to fit anyone very well, and it won't fit most people at all. Swapping the shirt out for a large isn't going to improve the fit for people as a whole, it will just change the people who fit in it. The curse of dimensionality rears its head when talking about "averages" over a number of dimensions. There's not really a good methodology to distill such a complex topic down to a single figure.
binarybits 4y ago
OP author here. I wrote a shadowstats debunker back in November: https://fullstackeconomics.com/no-the-real-inflation-rate-isnt-14-percent/ https://fullstackeconomics.com/no-the-real-inflation-rate-is... tldr: they don't actually reconstruct the old methodology. They add a fudge factor based on how much they think the new methodology increases the inflation rate. And that estimate is based on a basic math error.

deleted 4y ago

[deleted]