4 ms·

Do you understand that you've just linked the numbers that are being criticised without addressing the criticisms?

ilikehurdles 3y ago
What piece of the CPI adjustment formula are you arguing is so flawed that is negates any "real" gains of wages? And why do you believe the markets haven't caught on and started following a better metric? To bring things back a bit, the argument was that > housing and other costs like childcare have increased astronomically during that period negating any real gains Yet, gruez is downvoted while citing CPI-adjusted wage growth showing the contrary. CPI, for everyone's information, includes rental and housing costs in its indexing, as well as child care and many other services. Of course, it's just one (financially significant) formula, but it was a good faith rebuttal and the only comment in this thread citing anything close to objective evidence.
- jfim 3y ago
  The CPI only includes OER (owner equivalent rent), not housing prices. OER is also a lagging indicator due to it being calculated on current rental expenses, not market rate rents (eg. when people move and their rental expenses get adjusted for the market). A study by the San Francisco fed in 2022 [0] calculated that based on Zillow market data, the rent component of the CPI is to increase by about seven percent each year in 2022 and 2023: > Our model confirms that an increase in current asking rents or current house prices can push up the CPI rent index for a typical MSA for as long as 24 months into the future. Given the currently elevated levels of Zillow asking rent inflation and Zillow house price inflation averaged across all MSAs, the model predicts that CPI rent inflation will increase by about 3.4pp for both 2022 and 2023, relative to its historical average rate of 3.7%. [0] https://www.frbsf.org/economic-research/publications/economic-letter/2022/february/will-rising-rents-push-up-future-inflation/ https://www.frbsf.org/economic-research/publications/economi...
  - gruez 3y ago
    > The CPI only includes OER (owner equivalent rent), not housing prices. OER is also a lagging indicator due to it being calculated on current rental expenses, not market rate rents (eg. when people move and their rental expenses get adjusted for the market). And that's fine, because the CPI is for the whole country. Not everyone is a renter looking for a place right now. Some people do indeed have houses and therefore their housing costs are locked in perpetuity. If you take nominal wages, and deflate that using cpi-with-market-rents, that would indeed more accurately describe the plight of someone who's renting, compared to normal cpi. However, it would also make it the situation look worse than it is for someone who owns their home, because their housing costs are essentially fixed. You might empathize more with the former and think their plight deserves more attention. That's fine, but the specific claim being made was for the economy/country as a whole, not for a specific demographic.
  - cman1444 3y ago
    "OER is also a lagging indicator due to it being calculated on current rental expenses, not market rate rents." What kind of an argument is this? Clearly the OER must be a current indicator (i.e. not lagging) if it is based on current rental expenses. The small section of the population that is in the market for a new place to live should not be taken as the average for the entire population. If anything the market rents are just an indicator of future OER.
    - jfim 3y ago
      Rents are negotiated for a fixed period of time and are not necessarily increased to the market rate every year, hence the current price being paid being a lagging indicator of market prices. If you were tracking the inflation of banana prices and the market price for bananas went up 10% year over year, does someone having a fixed price contract from a year ago affect the actual inflation of banana prices?
      - cman1444 3y ago
        Your definition of "actual price" is different than what it should be. The CPI should show an average of what the populace is currently paying for rent. That is to say some people are locked into a low rate from years ago. Some people are locked into a slightly higher rate from a year to just a few months ago. Still others are paying market rates if they just negotiated their prices recently. CPI does not and should not show only what those paying the current rates are paying. It should show an average of what the entire population is paying.
nonethewiser 3y ago
That doesnt seem to be the case. The original claim is there was no wage increases but he showed there is 7%. Please elaborate.
- scaredginger 3y ago
  The original claim was that "The way real wages are tracked also undersell this trend"; they are calling CPI into question. Personally, I don't really have an opinion on whether CPI is effective here, but saying "CPI-adjusted wages have increased" is clearly a stupid argument when somebody questions the efficacy of CPI
  - gruez 3y ago
    >The original claim was that "The way real wages are tracked also undersell this trend"; they are calling CPI into question. The original comment makes no mention of CPI. It only mentions that certain categories of goods have outpaced wage growth. Of course you're going to get that result if you cherry pick your basket.

What piece of the CPI adjustment formula are you arguing is so flawed that is negates any "real" gains of wages? And why do you believe the markets haven't caught on and started following a better metric? To bring things back a bit, the argument was that > housing and other costs like childcare have increased astronomically during that period negating any real gains Yet, gruez is downvoted while citing CPI-adjusted wage growth showing the contrary. CPI, for everyone's information, includes rental and housing costs in its indexing, as well as child care and many other services. Of course, it's just one (financially significant) formula, but it was a good faith rebuttal and the only comment in this thread citing anything close to objective evidence.

jfim 3y ago
The CPI only includes OER (owner equivalent rent), not housing prices. OER is also a lagging indicator due to it being calculated on current rental expenses, not market rate rents (eg. when people move and their rental expenses get adjusted for the market). A study by the San Francisco fed in 2022 [0] calculated that based on Zillow market data, the rent component of the CPI is to increase by about seven percent each year in 2022 and 2023: > Our model confirms that an increase in current asking rents or current house prices can push up the CPI rent index for a typical MSA for as long as 24 months into the future. Given the currently elevated levels of Zillow asking rent inflation and Zillow house price inflation averaged across all MSAs, the model predicts that CPI rent inflation will increase by about 3.4pp for both 2022 and 2023, relative to its historical average rate of 3.7%. [0] https://www.frbsf.org/economic-research/publications/economic-letter/2022/february/will-rising-rents-push-up-future-inflation/ https://www.frbsf.org/economic-research/publications/economi...
- gruez 3y ago
  > The CPI only includes OER (owner equivalent rent), not housing prices. OER is also a lagging indicator due to it being calculated on current rental expenses, not market rate rents (eg. when people move and their rental expenses get adjusted for the market). And that's fine, because the CPI is for the whole country. Not everyone is a renter looking for a place right now. Some people do indeed have houses and therefore their housing costs are locked in perpetuity. If you take nominal wages, and deflate that using cpi-with-market-rents, that would indeed more accurately describe the plight of someone who's renting, compared to normal cpi. However, it would also make it the situation look worse than it is for someone who owns their home, because their housing costs are essentially fixed. You might empathize more with the former and think their plight deserves more attention. That's fine, but the specific claim being made was for the economy/country as a whole, not for a specific demographic.
- cman1444 3y ago
  "OER is also a lagging indicator due to it being calculated on current rental expenses, not market rate rents." What kind of an argument is this? Clearly the OER must be a current indicator (i.e. not lagging) if it is based on current rental expenses. The small section of the population that is in the market for a new place to live should not be taken as the average for the entire population. If anything the market rents are just an indicator of future OER.
  - jfim 3y ago
    Rents are negotiated for a fixed period of time and are not necessarily increased to the market rate every year, hence the current price being paid being a lagging indicator of market prices. If you were tracking the inflation of banana prices and the market price for bananas went up 10% year over year, does someone having a fixed price contract from a year ago affect the actual inflation of banana prices?
    - cman1444 3y ago
      Your definition of "actual price" is different than what it should be. The CPI should show an average of what the populace is currently paying for rent. That is to say some people are locked into a low rate from years ago. Some people are locked into a slightly higher rate from a year to just a few months ago. Still others are paying market rates if they just negotiated their prices recently. CPI does not and should not show only what those paying the current rates are paying. It should show an average of what the entire population is paying.

nonethewiser 3y ago

That doesnt seem to be the case. The original claim is there was no wage increases but he showed there is 7%. Please elaborate.

scaredginger 3y ago
The original claim was that "The way real wages are tracked also undersell this trend"; they are calling CPI into question. Personally, I don't really have an opinion on whether CPI is effective here, but saying "CPI-adjusted wages have increased" is clearly a stupid argument when somebody questions the efficacy of CPI
- gruez 3y ago
  >The original claim was that "The way real wages are tracked also undersell this trend"; they are calling CPI into question. The original comment makes no mention of CPI. It only mentions that certain categories of goods have outpaced wage growth. Of course you're going to get that result if you cherry pick your basket.