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Meh. There’s no single real rate of inflation. Different methods of measuring inflation have their pros and cons. Meanwhile, neither RPI or CPI try to track in

Meh. There’s no single real rate of inflation. Different methods of measuring inflation have their pros and cons. Meanwhile, neither RPI or CPI try to track increases in the cost of living.

gruez 4y ago
>Meanwhile, neither RPI or CPI try to track increases in the cost of living They don't? What are they tracking then?
- iso1631 4y ago
  They are tracking the price of an arbitrary basket of goods which is going to be different to your personal basket, as is required. The increase in the cost of living for someone who drives 20,000 miles a year will be different to that of someone who gets a train to work to that of someone who works from home to that of a pensioner with a small amount of money to a pensioner with a large amount of money
  - swores 4y ago
    You're describing the method they used to try to (roughly) "track the cost of living". You can argue that it is or isn't doing a good enough job in terms of the choices made but that's specifically what it's doing (and while it may not be doing it well enough, it obviously does need to be done based on sampling not based on producing an exact % for each individual that the things they bought over the past year have increased). (You're not the person who wrote "neither RPI or CPI try to track increases in the cost of living", but that's the context of this comment chain.)
- dave4420 4y ago
  They’re tracking the value of money. RPI/CPI aren’t only tracking the prices paid, but also the quality of goods exchanged. For example, TVs used to be bulky boxes, with a small, low res, black and white screen. These days they are flat and high res with a large colour screen. They’re better TVs. So part of the price difference between TVs now and TVs in the 1950s is that money is worth less, but some of it is that TVs are better. If you’re interested in tracking how much your currency is worth less these days, you need to compensate for this. On the other hand, if you want to buy a bottom of the range TV… you can’t buy a small bulky black and white TV these days. You’re going to buy a more expensive colour flat screen, and ok it’s better, but it’s also costing you more. (This also applies to fridges, freezers, washing machines etc.) Tldr RPI/CPI track changes in the value of money, and understate changes in the cost of living due to quality improvements in the goods people buy.
jjgreen 4y ago
RPI is the arithmetic mean, CPI the geometric mean (and some other smaller differences); the arithmetic-geometric mean inequality indicates the motivation for the switchover. https://en.wikipedia.org/wiki/Inequality_of_arithmetic_and_geometric_means https://en.wikipedia.org/wiki/Inequality_of_arithmetic_and_g...
- _benedict 4y ago
  RPI also includes some housing costs that are left out of CPI.
  - jjgreen 4y ago
    Indeed, the relative importance of that and the AM/GM change ("formula effects") can be seen in this document from the UK Office of National Statistics https://web.archive.org/web/20101214034940/http://www.statistics.gov.uk/downloads/theme_economy/cpi-rpi-information-note.pdf https://web.archive.org/web/20101214034940/http://www.statis...
tyho 4y ago
It's good to track different rates as you can then choose the index that suits you best. For example, RPI is typically higher than CPI, so naturally my student loan interest is a function of RPI, whereas tax thresholds are indexed to CPI. This works well in ensuring the government can achieve its primary aim which is to transfer all surplus worker productivity to wealthy pensioners.
- iso1631 4y ago
  To be fair I'm not sure if that's the primary aim or just a side effect
  - jjgreen 4y ago
    Dr. Pangloss I presume?
- II2II 4y ago
  Different country, but I've noticed that social assistance are linked to the CPI yet the CPI is linked to items that those who receive social assistance cannot afford and which are less impacted by inflation (at least under normal circumstances, I'm not sure about the current situation). I'm not sure about the intent though. When the government first announced COVID benefits it was quickly revealed that they had no understanding what most vulnerable members of society were facing. It took several rounds of announcements until everyone was satisfied. Likewise, the article's comment about pay increases for public sector employees made me cringe. At least on this side of the pond, the public sector has been hit hard and is in chaos since pay is based upon union contracts that were pre-pandemic. In some cases, union contracts expired early in the pandemic but where negotiations were stalled until recently due to the pandemic.

Meh. There’s no single real rate of inflation. Different methods of measuring inflation have their pros and cons. Meanwhile, neither RPI or CPI try to track increases in the cost of living.

gruez 4y ago

>Meanwhile, neither RPI or CPI try to track increases in the cost of living They don't? What are they tracking then?

iso1631 4y ago
They are tracking the price of an arbitrary basket of goods which is going to be different to your personal basket, as is required. The increase in the cost of living for someone who drives 20,000 miles a year will be different to that of someone who gets a train to work to that of someone who works from home to that of a pensioner with a small amount of money to a pensioner with a large amount of money
- swores 4y ago
  You're describing the method they used to try to (roughly) "track the cost of living". You can argue that it is or isn't doing a good enough job in terms of the choices made but that's specifically what it's doing (and while it may not be doing it well enough, it obviously does need to be done based on sampling not based on producing an exact % for each individual that the things they bought over the past year have increased). (You're not the person who wrote "neither RPI or CPI try to track increases in the cost of living", but that's the context of this comment chain.)
dave4420 4y ago
They’re tracking the value of money. RPI/CPI aren’t only tracking the prices paid, but also the quality of goods exchanged. For example, TVs used to be bulky boxes, with a small, low res, black and white screen. These days they are flat and high res with a large colour screen. They’re better TVs. So part of the price difference between TVs now and TVs in the 1950s is that money is worth less, but some of it is that TVs are better. If you’re interested in tracking how much your currency is worth less these days, you need to compensate for this. On the other hand, if you want to buy a bottom of the range TV… you can’t buy a small bulky black and white TV these days. You’re going to buy a more expensive colour flat screen, and ok it’s better, but it’s also costing you more. (This also applies to fridges, freezers, washing machines etc.) Tldr RPI/CPI track changes in the value of money, and understate changes in the cost of living due to quality improvements in the goods people buy.

jjgreen 4y ago

RPI is the arithmetic mean, CPI the geometric mean (and some other smaller differences); the arithmetic-geometric mean inequality indicates the motivation for the switchover. https://en.wikipedia.org/wiki/Inequality_of_arithmetic_and_geometric_means https://en.wikipedia.org/wiki/Inequality_of_arithmetic_and_g...

_benedict 4y ago
RPI also includes some housing costs that are left out of CPI.
- jjgreen 4y ago
  Indeed, the relative importance of that and the AM/GM change ("formula effects") can be seen in this document from the UK Office of National Statistics https://web.archive.org/web/20101214034940/http://www.statistics.gov.uk/downloads/theme_economy/cpi-rpi-information-note.pdf https://web.archive.org/web/20101214034940/http://www.statis...

tyho 4y ago

It's good to track different rates as you can then choose the index that suits you best. For example, RPI is typically higher than CPI, so naturally my student loan interest is a function of RPI, whereas tax thresholds are indexed to CPI. This works well in ensuring the government can achieve its primary aim which is to transfer all surplus worker productivity to wealthy pensioners.

iso1631 4y ago
To be fair I'm not sure if that's the primary aim or just a side effect
- jjgreen 4y ago
  Dr. Pangloss I presume?
II2II 4y ago
Different country, but I've noticed that social assistance are linked to the CPI yet the CPI is linked to items that those who receive social assistance cannot afford and which are less impacted by inflation (at least under normal circumstances, I'm not sure about the current situation). I'm not sure about the intent though. When the government first announced COVID benefits it was quickly revealed that they had no understanding what most vulnerable members of society were facing. It took several rounds of announcements until everyone was satisfied. Likewise, the article's comment about pay increases for public sector employees made me cringe. At least on this side of the pond, the public sector has been hit hard and is in chaos since pay is based upon union contracts that were pre-pandemic. In some cases, union contracts expired early in the pandemic but where negotiations were stalled until recently due to the pandemic.