4 ms·

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...
      - valenterry 3y ago
        I don't think the calculation/definition makes sense to capture inflation though. The idea seems to be to measure the quality-of-life-impacting inflation and not just inflation. Which can make sense. So if people can elude inflation of certain goods by buying differents and if that happens, inflation exists but doesn't actually impact quality of life. That seems to be the theory and foundation of the calculation logic. The problem is that it's not necessarily true. If people completely stop buying product A (which's price increased 100x) and switch to product B (with the same price as before) then by the above calculation there is no inflation at all. However it could be that B is actually an inferior solution to their problem and while it works, they would prefer A over B when they cost the same. So for the above calculation to be meaningful, the loss of quality-of-life would have to be measured in the case where one product is replaced by another one. And that is of course extremely difficult to do. Therefore I would say that the above calcuation generally underestimates inflation. It would probably be more honest to project inflation by defining a static consumer's basket and following it's price into the future. When done so, it will overestimate inflation the more time passes. So it can be combined with the method above. And the real inflation is somewhere in between.
        throw0101c 3y ago
        > If people completely stop buying product A (which's price increased 100x) and switch to product B (with the same price as before) then by the above calculation there is no inflation at all. If people completely stop buying product A and switch to product B then the model should do that as well because the model should try to match reality. The CPI is about measuring prices of what consumers buy: the P and C in CPI. > It would probably be more honest to project inflation by defining a static consumer's basket and following it's price into the future. But that is not the purpose of the Consumer Price Index. There are other statistics available that may be useful: * https://en.wikipedia.org/wiki/Personal_consumption_expenditures_price_index https://en.wikipedia.org/wiki/Personal_consumption_expenditu... Or you could go out and measure the prices of these things yourself, as there's source code floating around that was used in academic research: * https://thebillionpricesproject.com https://thebillionpricesproject.com * https://en.wikipedia.org/wiki/MIT_Billion_Prices_project https://en.wikipedia.org/wiki/MIT_Billion_Prices_project The CPI was setup for a particular purpose and it is good at that purpose. If you want to measure something else don't try to shoehorn it in, setup a metric for what you to measure rather rather than wreck what works.
  - deleted 3y ago
    [deleted]
paulpauper 3y ago
In almost a century of economics, still no one has any precise definition of inflation, or how to calculate it. How inflation is calculated and measured or even what it means, is a hotly debated topic to this day. The observation that it seems to exclude a lot of things is part of the debate.
- willcipriano 3y ago
  The definition of inflation is a increase in the money supply, full stop. If you print 10% of all the dollars in existence, that's 10% inflation. Modern economists play around with the definition for political reasons, but classical economics were quite clear on what inflation is.
  - logicchains 3y ago
    Anyone disagreeing with this should consider the opposite claim: that someone could counterfeit and spend a significant sum of money without having any negative effect on other people's purchasing power, not even over the longer term.
    - kaashif 3y ago
      "and spend" is the key part. Lots of the money from QE just sat around as bank reserves and was never in the real economy being spent. That's how you can print money without causing runaway price inflation - just don't spend it.
  - kibwen 3y ago
    Inflation is not simply an increase in the money supply. Like everything else in a market, a dollar has a value. Like everything else in a market, that value changes based on supply and demand factors. An increase to the money supply will decrease the value of a dollar, so that's still correct. But you can't just ignore the demand side. For example, if the population increases, then that creates more demand for dollars, driving the price up; in such an environment, you can experience deflation even if you increase the money supply, if that increase to the money supply isn't enough to offset the increased demand from population growth. Conversely, if the population were to decrease, that would result in inflation even if the money supply was static. And population isn't the only factor driving demand, of course. It's more than just the money supply.
throw0101c 3y ago
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? Here's the current list of products that StatCan used for Canada's CPI as of August 2022: * https://www.statcan.gc.ca/en/statistical-programs/document/2301_D68_V1 https://www.statcan.gc.ca/en/statistical-programs/document/2... Reality is messy, and you cannot take all of it into account, and so you create models approximations (cf. [spherical cow](https://en.wikipedia.org/wiki/Spherical_cow https://en.wikipedia.org/wiki/Spherical_cow)). But in the words of [Alfred Korzybski](https://en.wikipedia.org/wiki/Map–territory_relation https://en.wikipedia.org/wiki/Map–territory_relation): * [The map is not the territory.](https://en.wikipedia.org/wiki/Map–territory_relation https://en.wikipedia.org/wiki/Map–territory_relation) * https://fs.blog/map-and-territory/ https://fs.blog/map-and-territory/ Or those of statistician George Box: * [All models are wrong but some are useful.](https://en.wikipedia.org/wiki/All_models_are_wrong https://en.wikipedia.org/wiki/All_models_are_wrong)
em500 3y ago
Which significant category do you think is missing here: https://www.bls.gov/cpi/tables/relative-importance/2022.htm https://www.bls.gov/cpi/tables/relative-importance/2022.htm ?
- roenxi 3y ago
  I generally agree with the implied point that goes with this question - people who make vague claims that the CPI is inaccurate don't understand the CPI and don't have specific complaints. However, if you read through the explanatory material in that link (which, let me just say, is a fun way to spend an afternoon although I haven't any time recently) there are some complaints to be had. It is remarkably challenging to follow what that index is measuring in real terms and whether it is measuring it accurately. It is hard to follow what biases the as-implemented sampling process might be subject to, there are several layers of weighting where it is hard to see how they were come up with and then 25% of the index is Owners' equivalent rent. So the question is not just can people level specific complaints, but also where are we supposed to draw confidence from that this is a useful number? "Men with suits spent a lot of time coming up with it" isn't a satisfying answer. I don't want to use it for discounting my investments, if my money isn't keeping up with the M2 monetary aggregate I'm shuffling my portfolio around (even gold pretends to have real returns if you discount it using CPI, which is ridiculous). And it isn't especially useful for my personal life because my weightings are not the weightings in this table. And if wages go up based on the CPI... that just reflects workers getting screwed. We've all seen what productivity and profit trends are doing. It looks like a baffle-them-with-bullshit con to distract from government spending and money printing by pretending that because this particular index doesn't go up everything is fine. The politicians have made the process of figuring out who is paying for the spending complicated enough that it is hard to do. That isn't a strategy that people should accept. Just because the logic is too complicated to understand doesn't mean that they've built a perpetual motion machine. Someone is losing out. This involved index is more of a distraction from the monetary aggregates at this point.

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...
    - valenterry 3y ago
      I don't think the calculation/definition makes sense to capture inflation though. The idea seems to be to measure the quality-of-life-impacting inflation and not just inflation. Which can make sense. So if people can elude inflation of certain goods by buying differents and if that happens, inflation exists but doesn't actually impact quality of life. That seems to be the theory and foundation of the calculation logic. The problem is that it's not necessarily true. If people completely stop buying product A (which's price increased 100x) and switch to product B (with the same price as before) then by the above calculation there is no inflation at all. However it could be that B is actually an inferior solution to their problem and while it works, they would prefer A over B when they cost the same. So for the above calculation to be meaningful, the loss of quality-of-life would have to be measured in the case where one product is replaced by another one. And that is of course extremely difficult to do. Therefore I would say that the above calcuation generally underestimates inflation. It would probably be more honest to project inflation by defining a static consumer's basket and following it's price into the future. When done so, it will overestimate inflation the more time passes. So it can be combined with the method above. And the real inflation is somewhere in between.
      - throw0101c 3y ago
        > If people completely stop buying product A (which's price increased 100x) and switch to product B (with the same price as before) then by the above calculation there is no inflation at all. If people completely stop buying product A and switch to product B then the model should do that as well because the model should try to match reality. The CPI is about measuring prices of what consumers buy: the P and C in CPI. > It would probably be more honest to project inflation by defining a static consumer's basket and following it's price into the future. But that is not the purpose of the Consumer Price Index. There are other statistics available that may be useful: * https://en.wikipedia.org/wiki/Personal_consumption_expenditures_price_index https://en.wikipedia.org/wiki/Personal_consumption_expenditu... Or you could go out and measure the prices of these things yourself, as there's source code floating around that was used in academic research: * https://thebillionpricesproject.com https://thebillionpricesproject.com * https://en.wikipedia.org/wiki/MIT_Billion_Prices_project https://en.wikipedia.org/wiki/MIT_Billion_Prices_project The CPI was setup for a particular purpose and it is good at that purpose. If you want to measure something else don't try to shoehorn it in, setup a metric for what you to measure rather rather than wreck what works.
- deleted 3y ago
  [deleted]

paulpauper 3y ago

In almost a century of economics, still no one has any precise definition of inflation, or how to calculate it. How inflation is calculated and measured or even what it means, is a hotly debated topic to this day. The observation that it seems to exclude a lot of things is part of the debate.

willcipriano 3y ago
The definition of inflation is a increase in the money supply, full stop. If you print 10% of all the dollars in existence, that's 10% inflation. Modern economists play around with the definition for political reasons, but classical economics were quite clear on what inflation is.
- logicchains 3y ago
  Anyone disagreeing with this should consider the opposite claim: that someone could counterfeit and spend a significant sum of money without having any negative effect on other people's purchasing power, not even over the longer term.
  - kaashif 3y ago
    "and spend" is the key part. Lots of the money from QE just sat around as bank reserves and was never in the real economy being spent. That's how you can print money without causing runaway price inflation - just don't spend it.
- kibwen 3y ago
  Inflation is not simply an increase in the money supply. Like everything else in a market, a dollar has a value. Like everything else in a market, that value changes based on supply and demand factors. An increase to the money supply will decrease the value of a dollar, so that's still correct. But you can't just ignore the demand side. For example, if the population increases, then that creates more demand for dollars, driving the price up; in such an environment, you can experience deflation even if you increase the money supply, if that increase to the money supply isn't enough to offset the increased demand from population growth. Conversely, if the population were to decrease, that would result in inflation even if the money supply was static. And population isn't the only factor driving demand, of course. It's more than just the money supply.

throw0101c 3y ago

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? Here's the current list of products that StatCan used for Canada's CPI as of August 2022: * https://www.statcan.gc.ca/en/statistical-programs/document/2301_D68_V1 https://www.statcan.gc.ca/en/statistical-programs/document/2... Reality is messy, and you cannot take all of it into account, and so you create models approximations (cf. [spherical cow](https://en.wikipedia.org/wiki/Spherical_cow https://en.wikipedia.org/wiki/Spherical_cow)). But in the words of [Alfred Korzybski](https://en.wikipedia.org/wiki/Map–territory_relation https://en.wikipedia.org/wiki/Map–territory_relation): * [The map is not the territory.](https://en.wikipedia.org/wiki/Map–territory_relation https://en.wikipedia.org/wiki/Map–territory_relation) * https://fs.blog/map-and-territory/ https://fs.blog/map-and-territory/ Or those of statistician George Box: * [All models are wrong but some are useful.](https://en.wikipedia.org/wiki/All_models_are_wrong https://en.wikipedia.org/wiki/All_models_are_wrong)

em500 3y ago

Which significant category do you think is missing here: https://www.bls.gov/cpi/tables/relative-importance/2022.htm https://www.bls.gov/cpi/tables/relative-importance/2022.htm ?

roenxi 3y ago
I generally agree with the implied point that goes with this question - people who make vague claims that the CPI is inaccurate don't understand the CPI and don't have specific complaints. However, if you read through the explanatory material in that link (which, let me just say, is a fun way to spend an afternoon although I haven't any time recently) there are some complaints to be had. It is remarkably challenging to follow what that index is measuring in real terms and whether it is measuring it accurately. It is hard to follow what biases the as-implemented sampling process might be subject to, there are several layers of weighting where it is hard to see how they were come up with and then 25% of the index is Owners' equivalent rent. So the question is not just can people level specific complaints, but also where are we supposed to draw confidence from that this is a useful number? "Men with suits spent a lot of time coming up with it" isn't a satisfying answer. I don't want to use it for discounting my investments, if my money isn't keeping up with the M2 monetary aggregate I'm shuffling my portfolio around (even gold pretends to have real returns if you discount it using CPI, which is ridiculous). And it isn't especially useful for my personal life because my weightings are not the weightings in this table. And if wages go up based on the CPI... that just reflects workers getting screwed. We've all seen what productivity and profit trends are doing. It looks like a baffle-them-with-bullshit con to distract from government spending and money printing by pretending that because this particular index doesn't go up everything is fine. The politicians have made the process of figuring out who is paying for the spending complicated enough that it is hard to do. That isn't a strategy that people should accept. Just because the logic is too complicated to understand doesn't mean that they've built a perpetual motion machine. Someone is losing out. This involved index is more of a distraction from the monetary aggregates at this point.