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How would one game the CPI? A price index is just an average of the prices of a bunch of different goods. We have pretty hard data on the prices of goods. Peopl

by adamhp 3y ago

How would one game the CPI? A price index is just an average of the prices of a bunch of different goods. We have pretty hard data on the prices of goods. People likely think inflation is higher because they purchase more of a particular good that has significantly increased. Used cars, for example, accounted for almost a third of the inflation measure in 2021.

thworp 3y ago
You answered your own question, one of the ways is to "adjust for consumer preferences" the goods baskets You can also change the weights for various localities or overstate how much better the new version of a product is and reduce its weight. Fundamentally the BLS in the US has no incentive to accurately report inflation. They are a department of the executive with no real safeguards against political influence. Reducing the official CPI reduces the government's expenditure and understating inflation is a great way to do so without officially cutting any budget item. Further, see my sister comment to yours, inflation is personal, a country-wide single-number inflation measure is broken by design.
- adfgadfhion 3y ago
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TexanFeller 3y ago
> How would one game the CPI? A price index is just an average of the prices of a bunch of different goods. - They have changed what goods are thrown in the basket and in what proportion repeatedly. - They have made adjustments, or when they haven't they arguably should, for variation in quality of goods since for example any TV you buy now is higher quality than anything available in 1990. You don't have the option of buying the previous quality anymore though. - It's a bit murky how to account for substitutions over time such as people buying Impossible burgers instead of beef. Many of the adjustments they consider are completely reasonable but involve subjective and game-able choices which makes the measure hard to trust at face value.
- lend000 3y ago
  +1 One more problem with CPI is that the way it works is they survey a bunch of median households about what they bought and how much of it they bought, and they don't adjust for how much money they saved. So in economic times when the median household was able to save some money, that resulted in a different CPI than when households spend their entire paychecks (where they have to adjust their spending preferences/how they allocate according to the maximum they could spend -- all their money). For example, if grocery prices go up 30% on average, but only 10% on some staple like beans, I might buy more beans than I used to, putting more weight on the item whose price increased less, but not out of preference for that item. That increases the BLS weight for beans and decreases it for prices that are rising more quickly. Back in 1980 I might have bought different items and also saved some money each month. Now that saving portion of my "expenditures" is gone, but that also isn't accounted for by the CPI. There's a reason that charts of real wages over time are largely flat or even increasing [0], despite that being inconsistent with the economic reality, and it's this BLS metric to blame. [0] https://fred.stlouisfed.org/series/LES1252881600Q https://fred.stlouisfed.org/series/LES1252881600Q
  - frumper 3y ago
    > I might buy more beans than I used to, putting more weight on the item whose price increased less, but not out of preference for that item. You've described preferring to buy beans over other food items.
    - lend000 3y ago
      No, I've described financial necessity, because I can no longer afford the item I prefer (which was recorded as my preference in a prior BLS survey, before the prices rose). But sure, if you think pedantry benefits the discussion...
      - frumper 3y ago
        Since the prices changed, you now prefer beans. The CPI isn't tracking the price of beans, it's tracking the overall price of food. Prices change all of the time, and consumer behavior changes because of it. If you choose to buy beans because it's more affordable, then the price of food should reflect what you're buying because that is a number you can back up. If you track what you want to buy then it's just make believe.

by adamhp 3y ago

thworp 3y ago

You answered your own question, one of the ways is to "adjust for consumer preferences" the goods baskets You can also change the weights for various localities or overstate how much better the new version of a product is and reduce its weight. Fundamentally the BLS in the US has no incentive to accurately report inflation. They are a department of the executive with no real safeguards against political influence. Reducing the official CPI reduces the government's expenditure and understating inflation is a great way to do so without officially cutting any budget item. Further, see my sister comment to yours, inflation is personal, a country-wide single-number inflation measure is broken by design.

adfgadfhion 3y ago
[dead]

TexanFeller 3y ago

> How would one game the CPI? A price index is just an average of the prices of a bunch of different goods. - They have changed what goods are thrown in the basket and in what proportion repeatedly. - They have made adjustments, or when they haven't they arguably should, for variation in quality of goods since for example any TV you buy now is higher quality than anything available in 1990. You don't have the option of buying the previous quality anymore though. - It's a bit murky how to account for substitutions over time such as people buying Impossible burgers instead of beef. Many of the adjustments they consider are completely reasonable but involve subjective and game-able choices which makes the measure hard to trust at face value.

lend000 3y ago
+1 One more problem with CPI is that the way it works is they survey a bunch of median households about what they bought and how much of it they bought, and they don't adjust for how much money they saved. So in economic times when the median household was able to save some money, that resulted in a different CPI than when households spend their entire paychecks (where they have to adjust their spending preferences/how they allocate according to the maximum they could spend -- all their money). For example, if grocery prices go up 30% on average, but only 10% on some staple like beans, I might buy more beans than I used to, putting more weight on the item whose price increased less, but not out of preference for that item. That increases the BLS weight for beans and decreases it for prices that are rising more quickly. Back in 1980 I might have bought different items and also saved some money each month. Now that saving portion of my "expenditures" is gone, but that also isn't accounted for by the CPI. There's a reason that charts of real wages over time are largely flat or even increasing [0], despite that being inconsistent with the economic reality, and it's this BLS metric to blame. [0] https://fred.stlouisfed.org/series/LES1252881600Q https://fred.stlouisfed.org/series/LES1252881600Q
- frumper 3y ago
  > I might buy more beans than I used to, putting more weight on the item whose price increased less, but not out of preference for that item. You've described preferring to buy beans over other food items.
  - lend000 3y ago
    No, I've described financial necessity, because I can no longer afford the item I prefer (which was recorded as my preference in a prior BLS survey, before the prices rose). But sure, if you think pedantry benefits the discussion...
    - frumper 3y ago
      Since the prices changed, you now prefer beans. The CPI isn't tracking the price of beans, it's tracking the overall price of food. Prices change all of the time, and consumer behavior changes because of it. If you choose to buy beans because it's more affordable, then the price of food should reflect what you're buying because that is a number you can back up. If you track what you want to buy then it's just make believe.