5 ms·

CPI allows substitutions. So where the basket in 1999 included beef, now it probably only includes chicken.

by kleton 3y ago

gjsman-1000 3y ago
Does it allow substitutions for country of origin? What if it was primarily US-made goods, but now reflects lower-cost imports?
pton_xd 3y ago
And, according to the article "the CPI does not directly measure the prices of investments like stocks or the purchase price of homes." So they have a category called "Housing" which presumably does not include the price of a home. Very informative and helpful infographic.
- snapplebobapple 3y ago
  Its owners equivalent rent i believe, which makes sense academically but not practically. When you are using it to gauge whether your monetary policy is causing inflation you should be looking at asset prices at least as hard as consumable prices and you shiuld be extremely wary doing substitutions.
- s1artibartfast 3y ago
  It counts the cost of rent. If you buy a house for far more than the value of rent, you are making a speculative investment. Rent is half my mortgage for an equivalent house. It wouldn't be realistic to call my mortgage the cost of shelter.
  - medvezhenok 3y ago
    I think that’s actually the big problem with the CPI - it treats a house purchase as a speculative investment, rather than a separate category of housing on equal footing with rent. I think the median housing payment (mortgage + interest) should be included in the CPI. As someone who is looking to start a family, renting vs owning is not simply a financial question, they are totally different goods which are not interchangeable
    - s1artibartfast 3y ago
      I totally agree that they are not the same. However, the CPI isn't supposed to capture everything. If someone wants to talk about the cost of buying and homeownership rates, there is tons of data on that to point at.
  - jclardy 3y ago
    Do you live in a slow real estate market? In the area I'm in, rent is basically equal or slightly higher than a 30 year mortgage with 20% down - if you can find a house to buy in the first place.
    - s1artibartfast 3y ago
      Bay area. It is a hot real estate area, hence the high purchase price
  - halostatue 3y ago
    In Toronto, our mortgage is ½ to ⅔ of the equivalent rent these days. The startup costs for it, though, are killer — and most people's mortgages starting today would be closer to ¾ to ⅞ of rent, not counting the cash downpayment required.
hipadev23 3y ago
CPI excludes any categories that make it look like we have inflation.
- amanaplanacanal 3y ago
  I believe they look at what people actually spend their money on to determine the basket of goods. All their data and methods are on the bls.gov website.
  - valenterry 3y ago
    So if prices for good A go up and people stop buying it then it is considered less in the calculation? Seems a bit skewed to me.
    - dbsights 3y ago
      And if the prices for good B go down, and people buy more of it, then it will be weighted more in the calculation. CPI is structurally biased to report lower inflation.
      - throw0101c 3y ago
        > And if the prices for good B go down, and people buy more of it, then it will be weighted more in the calculation. Yes? Of course? Up here in Canada, the CPI is adjusted from spending surveys: * https://www.statcan.gc.ca/en/survey/household/3508 https://www.statcan.gc.ca/en/survey/household/3508 When people change their habits in life the CPI is changed to reflect what that life costs. You can see the list of changes going back to 1913: * https://www.statcan.gc.ca/en/statistical-programs/document/2301_D70_V1 https://www.statcan.gc.ca/en/statistical-programs/document/2... Do you think coal and lard should be included, like they were pre-1956? Or do you think the CPI should try to model reality? > CPI is structurally biased to report lower inflation. Quite the opposite. In the 1990s the Boskin Commission found that CPI was too high: > The Boskin Commission, formally called the "Advisory Commission to Study the Consumer Price Index", was appointed by the United States Senate in 1995 to study possible bias in the computation of the Consumer Price Index (CPI), which is used to measure inflation in the United States. Its final report, titled "Toward A More Accurate Measure Of The Cost Of Living" and issued on December 4, 1996, concluded that the CPI overstated inflation by about 1.1 percentage points per year in 1996 and about 1.3 percentage points prior to 1996. * https://en.wikipedia.org/wiki/Boskin_Commission https://en.wikipedia.org/wiki/Boskin_Commission * https://www.ssa.gov/history/reports/boskinrpt.html https://www.ssa.gov/history/reports/boskinrpt.html * https://www.stlouisfed.org/publications/regional-economist/july-1997/critiquing-the-consumer-price-index https://www.stlouisfed.org/publications/regional-economist/j...

CPI allows substitutions. So where the basket in 1999 included beef, now it probably only includes chicken.

by kleton 3y ago

CPI allows substitutions. So where the basket in 1999 included beef, now it probably only includes chicken.

Does it allow substitutions for country of origin? What if it was primarily US-made goods, but now reflects lower-cost imports?

pton_xd 3y ago

And, according to the article "the CPI does not directly measure the prices of investments like stocks or the purchase price of homes." So they have a category called "Housing" which presumably does not include the price of a home. Very informative and helpful infographic.

snapplebobapple 3y ago
Its owners equivalent rent i believe, which makes sense academically but not practically. When you are using it to gauge whether your monetary policy is causing inflation you should be looking at asset prices at least as hard as consumable prices and you shiuld be extremely wary doing substitutions.
s1artibartfast 3y ago
It counts the cost of rent. If you buy a house for far more than the value of rent, you are making a speculative investment. Rent is half my mortgage for an equivalent house. It wouldn't be realistic to call my mortgage the cost of shelter.
- medvezhenok 3y ago
  I think that’s actually the big problem with the CPI - it treats a house purchase as a speculative investment, rather than a separate category of housing on equal footing with rent. I think the median housing payment (mortgage + interest) should be included in the CPI. As someone who is looking to start a family, renting vs owning is not simply a financial question, they are totally different goods which are not interchangeable
  - s1artibartfast 3y ago
    I totally agree that they are not the same. However, the CPI isn't supposed to capture everything. If someone wants to talk about the cost of buying and homeownership rates, there is tons of data on that to point at.
- jclardy 3y ago
  Do you live in a slow real estate market? In the area I'm in, rent is basically equal or slightly higher than a 30 year mortgage with 20% down - if you can find a house to buy in the first place.
  - s1artibartfast 3y ago
    Bay area. It is a hot real estate area, hence the high purchase price
- halostatue 3y ago
  In Toronto, our mortgage is ½ to ⅔ of the equivalent rent these days. The startup costs for it, though, are killer — and most people's mortgages starting today would be closer to ¾ to ⅞ of rent, not counting the cash downpayment required.

hipadev23 3y ago

CPI excludes any categories that make it look like we have inflation.

amanaplanacanal 3y ago
I believe they look at what people actually spend their money on to determine the basket of goods. All their data and methods are on the bls.gov website.
- valenterry 3y ago
  So if prices for good A go up and people stop buying it then it is considered less in the calculation? Seems a bit skewed to me.
  - dbsights 3y ago
    And if the prices for good B go down, and people buy more of it, then it will be weighted more in the calculation. CPI is structurally biased to report lower inflation.
    - throw0101c 3y ago
      > And if the prices for good B go down, and people buy more of it, then it will be weighted more in the calculation. Yes? Of course? Up here in Canada, the CPI is adjusted from spending surveys: * https://www.statcan.gc.ca/en/survey/household/3508 https://www.statcan.gc.ca/en/survey/household/3508 When people change their habits in life the CPI is changed to reflect what that life costs. You can see the list of changes going back to 1913: * https://www.statcan.gc.ca/en/statistical-programs/document/2301_D70_V1 https://www.statcan.gc.ca/en/statistical-programs/document/2... Do you think coal and lard should be included, like they were pre-1956? Or do you think the CPI should try to model reality? > CPI is structurally biased to report lower inflation. Quite the opposite. In the 1990s the Boskin Commission found that CPI was too high: > The Boskin Commission, formally called the "Advisory Commission to Study the Consumer Price Index", was appointed by the United States Senate in 1995 to study possible bias in the computation of the Consumer Price Index (CPI), which is used to measure inflation in the United States. Its final report, titled "Toward A More Accurate Measure Of The Cost Of Living" and issued on December 4, 1996, concluded that the CPI overstated inflation by about 1.1 percentage points per year in 1996 and about 1.3 percentage points prior to 1996. * https://en.wikipedia.org/wiki/Boskin_Commission https://en.wikipedia.org/wiki/Boskin_Commission * https://www.ssa.gov/history/reports/boskinrpt.html https://www.ssa.gov/history/reports/boskinrpt.html * https://www.stlouisfed.org/publications/regional-economist/july-1997/critiquing-the-consumer-price-index https://www.stlouisfed.org/publications/regional-economist/j...