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CPI is also a broken measure due to its inability to measure wealth inequality (sampling median purchasers only) and discretionary hedonic adjustments. Real inf

CPI is also a broken measure due to its inability to measure wealth inequality (sampling median purchasers only) and discretionary hedonic adjustments. Real inflation has likely been ~33% higher than reported for decades (the Big Mac index is probably the true gold standard).

gruez 4y ago
>CPI is also a broken measure due to its inability to measure wealth inequality (sampling median purchasers only) And that's fine, because the CPI's job is to measure how prices have changed (ie. inflation), not wealth inequality. Just because a given metric doesn't support your pet cause doesn't mean it's "broken". It's like complaining GDP is a broken metric because it doesn't measure how oppressed minorities are. > Real inflation has likely been ~33% higher than reported for decades (the Big Mac index is probably the true gold standard). I tried to confirm this and the results were far from conclusive. The big mac index data can be obtained from github[1] and gives a 129.9% increase between april 2000 (earliest data available) and july 2022 (latest data available). To compare this against the CPI data, I checked on FRED and the "Consumer Price Index for All Urban Consumers: Food Away from Home in U.S. City Average"[2] component of the CPI gives a 87.0% for the same time period. If you take those numbers and convert them to annualized rates, you will indeed find a 33.3% difference between them. Looks like your claim is confirmed, right? But not so fast. The CPI category listed above actually breaks down into more detailed categories, including "Limited service meals and snacks", which presumably the big mac falls into. That data isn't available on FRED but can be found on BLS's data viewer[3] and gives you a 105.8% increase for the same time period. If you convert that to an annualized rate the difference between that and the big mac index drops to 15%. I suspect if we try harder we can eliminate more of the discrepancy. For instance, the "Limited service meals and snacks" index was probably computed from a basket of items, not just big macs. Items that have fatter margins (eg. fries or drinks) might have inflated slower than big macs, thereby dragging the growth of the basket down and explaining the difference. [1] https://github.com/TheEconomist/big-mac-data/ https://github.com/TheEconomist/big-mac-data/ [2] https://fred.stlouisfed.org/series/CUSR0000SEFV https://fred.stlouisfed.org/series/CUSR0000SEFV [3] https://beta.bls.gov/dataViewer/view https://beta.bls.gov/dataViewer/view
- Retric 4y ago
  At some point if food, housing, medicine, education etc are consistently rising faster than inflation for long periods perhaps there’s a constant issue with how inflation is being measured. In the end if your spending doesn’t map to the basket of goods used to calculate inflation then the official figures aren’t meaningful.
  - gruez 4y ago
    > At some point if food, housing, medicine, education etc are consistently rising faster than inflation for long periods perhaps there’s a constant issue with how inflation is being measured. The CPI is computed from a basket of goods, so you're always going to be able to pick some components that are growing faster than average. The fact that such components exist doesn't mean that "there’s a constant issue with how inflation is being measured". >In the end if your spending doesn’t map to the basket of goods used to calculate inflation then the official figures aren’t meaningful. Sure, they might not match your consumption patterns 100%, but that's because everyone's consumption patterns are different and it's impossible to come up with a metric that maps 100% for everyone. What matters is whether the basket accurately captures the spending patterns of the public as a whole. The BLS makes the basket weights publicly available[1]. I skimmed the list and they look fairly sensible. Are there any specific items from that you think don't accurately capture how the average american spends? [1] https://www.bls.gov/cpi/tables/relative-importance/2022.htm https://www.bls.gov/cpi/tables/relative-importance/2022.htm
    - Retric 4y ago
      > The fact that such components exist doesn't mean that "there’s a constant issue with how inflation is being measured". The problem is consistency. People need to eat. So if food increases significantly faster than inflation then eventually people’s basket of goods will consist of 99% food and 1% everything else. If you look at a family of 4’s spending in 1990 vs today some stuff has gotten cheaper but to have an equal lifestyle you also need to buy the stuff that’s dramatically more expensive. A cheap Disneyland vacation isn’t cheap any more. Granted people’s actual purchasing reflects the new reality so Netflix substitutes for that movie tickets they can’t afford, but that isn’t an equivalent good. If you want a specific example Apparel. Clothes the average person buys has gotten much worse over time. Fast fashion isn’t just about keeping up with trends, it just doesn’t last.

gruez 4y ago

>CPI is also a broken measure due to its inability to measure wealth inequality (sampling median purchasers only) And that's fine, because the CPI's job is to measure how prices have changed (ie. inflation), not wealth inequality. Just because a given metric doesn't support your pet cause doesn't mean it's "broken". It's like complaining GDP is a broken metric because it doesn't measure how oppressed minorities are. > Real inflation has likely been ~33% higher than reported for decades (the Big Mac index is probably the true gold standard). I tried to confirm this and the results were far from conclusive. The big mac index data can be obtained from github[1] and gives a 129.9% increase between april 2000 (earliest data available) and july 2022 (latest data available). To compare this against the CPI data, I checked on FRED and the "Consumer Price Index for All Urban Consumers: Food Away from Home in U.S. City Average"[2] component of the CPI gives a 87.0% for the same time period. If you take those numbers and convert them to annualized rates, you will indeed find a 33.3% difference between them. Looks like your claim is confirmed, right? But not so fast. The CPI category listed above actually breaks down into more detailed categories, including "Limited service meals and snacks", which presumably the big mac falls into. That data isn't available on FRED but can be found on BLS's data viewer[3] and gives you a 105.8% increase for the same time period. If you convert that to an annualized rate the difference between that and the big mac index drops to 15%. I suspect if we try harder we can eliminate more of the discrepancy. For instance, the "Limited service meals and snacks" index was probably computed from a basket of items, not just big macs. Items that have fatter margins (eg. fries or drinks) might have inflated slower than big macs, thereby dragging the growth of the basket down and explaining the difference. [1] https://github.com/TheEconomist/big-mac-data/ https://github.com/TheEconomist/big-mac-data/ [2] https://fred.stlouisfed.org/series/CUSR0000SEFV https://fred.stlouisfed.org/series/CUSR0000SEFV [3] https://beta.bls.gov/dataViewer/view https://beta.bls.gov/dataViewer/view

Retric 4y ago
At some point if food, housing, medicine, education etc are consistently rising faster than inflation for long periods perhaps there’s a constant issue with how inflation is being measured. In the end if your spending doesn’t map to the basket of goods used to calculate inflation then the official figures aren’t meaningful.
- gruez 4y ago
  > At some point if food, housing, medicine, education etc are consistently rising faster than inflation for long periods perhaps there’s a constant issue with how inflation is being measured. The CPI is computed from a basket of goods, so you're always going to be able to pick some components that are growing faster than average. The fact that such components exist doesn't mean that "there’s a constant issue with how inflation is being measured". >In the end if your spending doesn’t map to the basket of goods used to calculate inflation then the official figures aren’t meaningful. Sure, they might not match your consumption patterns 100%, but that's because everyone's consumption patterns are different and it's impossible to come up with a metric that maps 100% for everyone. What matters is whether the basket accurately captures the spending patterns of the public as a whole. The BLS makes the basket weights publicly available[1]. I skimmed the list and they look fairly sensible. Are there any specific items from that you think don't accurately capture how the average american spends? [1] https://www.bls.gov/cpi/tables/relative-importance/2022.htm https://www.bls.gov/cpi/tables/relative-importance/2022.htm
  - Retric 4y ago
    > The fact that such components exist doesn't mean that "there’s a constant issue with how inflation is being measured". The problem is consistency. People need to eat. So if food increases significantly faster than inflation then eventually people’s basket of goods will consist of 99% food and 1% everything else. If you look at a family of 4’s spending in 1990 vs today some stuff has gotten cheaper but to have an equal lifestyle you also need to buy the stuff that’s dramatically more expensive. A cheap Disneyland vacation isn’t cheap any more. Granted people’s actual purchasing reflects the new reality so Netflix substitutes for that movie tickets they can’t afford, but that isn’t an equivalent good. If you want a specific example Apparel. Clothes the average person buys has gotten much worse over time. Fast fashion isn’t just about keeping up with trends, it just doesn’t last.