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Retail inflation is based on the prices of goods, including new cars. So it's pointless to compare car prices to inflation because they are part of the basis o

Retail inflation is based on the prices of goods, including new cars. So it's pointless to compare car prices to inflation because they are part of the basis of the measure. Hence why they track closely.

anon7000 1y ago
Then it’s pointless to compare nearly anything to inflation, which means inflation isn’t very useful. You can still find many product categories increasing in price more slowly than inflation. Some much higher than inflation. So it is useful to compare inflation
- ajkjk 1y ago
  But the question we're asking is why the price of cars went up. "Inflation" isn't an answer. Inflation is what we call the price of cars going up. It still happens for a reason...
  - jonny_eh 1y ago
    Except that inflation isn't just the price of cars. The fact that car prices have gone up faster than "overall" inflation is significant.
    - chii 1y ago
      cars inflating faster than overall/average inflation of the economy is significant. I suspect the reason is that a car's parts are numerous, and because specific inflation affects different components, there's a good chance that a car's component has more inflation than other products in the economy. And because inflation has an expectation driven aspect, suppliers that know inflation is happening is going to raise their prices more to combat it pre-emtively. This happens throughout the entire supply chain. Thus, the end result is that a car's inflationary pressure is higher. But that's just a theory - an inflation theory...
  - eloisant 1y ago
    If the cars prices simply follow inflation, then there is no point in writing an article about why car prices in particular have gone up. Just write about inflation in general. Energy costs going up, raw materials costs going up, employees asking for raises because of the higher cost of living... And you have an explanation not just for cars but all industries.
  - scotty79 1y ago
    Inflation is a result of too much money being created than what is needed by the growth of the economy. Average price increase that we use to estimate it is just a useful proxy. Inflation is always the main contribution to price increase. It only makes sense to compare price raise above or below inflation if you want to unearth factors specific to any given product or industry.
    - habnds 1y ago
      Inflation is completely possible with no change in money supply. This is handled in economics with the idea of the "velocity of money" which conceptually captures the large range of factors by which prices can increase due to factors beyond money supply, for example an energy price shock or changing consumer and business expectations that result in changes in spending and investment patterns.
      - weberer 1y ago
        In theory, sure. But in practice the money supply has nearly quadrupled since 2005. https://www.investopedia.com/terms/m/m2.asp https://www.investopedia.com/terms/m/m2.asp https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/M2SL
        habnds 1y ago
        $1 in Jan 2005 is only 1.69 today, not $4 because the velocity of money has decreased dramatically as it has pooled towards the top of the income/wealth spectrum where it doesn't get spent or productively invested.
        scotty79 1y ago
        Bulk of it is that, but some of it is that larger economy needs more money to run. So while there was 4 food money supply increase the legitimate demand also increased somewhat. Exact numbers might be hard to pinpoint because we tend to measure economy in dollars but still it wouldn't be $4 even if the rich didn't get disproportionately wealthy from this supply.
  - moconnor 1y ago
    No. Inflation is what we call the value of money going down. As evidenced by needing to part with more of it in exchange for a standard basket goods. It is fundamentally different to ask whether cars cost more because money is worth less, or whether cars cost more because we are making them less efficiently. The ancestor comment points out that most of the change can be attributed to the former and as cars are only a small percentage of the inflation basket then it is reasonable to conclude that this is indeed the prime reason for the price rise. The fundamentals of civilization would be a lot clearer if we measured the value of things in energy instead of a floating currency.
    - roenxi 1y ago
      Or, to put it another way, going by the thread ancestor we expect the price of cars to have risen around 26.2% due to currency devaluation. If the price of cars has risen 29.2% it is more or less pointless to look at the car industry for an explanation. The price has risen by roughly what we'd expect if they were doing what they've been doing with no real changes.
slg 1y ago
This can quickly turn into a philosophical debate rather than an economic one. Which value went up first, the chicken or the egg? Personally, I think the way it makes the most sense is thinking of inflation as the change in the value of money rather than the change in the cost of goods, in large part because costs rise for non-goods too. For example, my employer pays me more today than they did in 2019 despite my employer not selling any goods or buying many goods outside of laptops for their employees and they obviously don't care about my personal expenses when determining annual raises.
mlyle 1y ago
Saying you can't compare car prices to inflation because cars are in the CPI... We're really doing this? New cars make up about 4% of the CPI, and used cars around 3%, so together they’re only a small part of the inflation basket. If new car prices doubled tomorrow and nothing else changed, headline inflation would rise by about 4%, but car prices would have increased 92% relative to inflation. Inflation measures the decline in the value of money over time. If car prices rise significantly more or less than that decline can explain, that’s meaningful. If they don't... that's not.
bravesoul2 1y ago
For affordability the real question is median or mode wage inflation or deflation.
lostlogin 1y ago
> So it's pointless to compare car prices to inflation because they are part of the basis of the measure. Hence why they track closely. What? So how do you use the CPI? To measure things no one ever buys?

anon7000 1y ago

Then it’s pointless to compare nearly anything to inflation, which means inflation isn’t very useful. You can still find many product categories increasing in price more slowly than inflation. Some much higher than inflation. So it is useful to compare inflation

ajkjk 1y ago
But the question we're asking is why the price of cars went up. "Inflation" isn't an answer. Inflation is what we call the price of cars going up. It still happens for a reason...
- jonny_eh 1y ago
  Except that inflation isn't just the price of cars. The fact that car prices have gone up faster than "overall" inflation is significant.
  - chii 1y ago
    cars inflating faster than overall/average inflation of the economy is significant. I suspect the reason is that a car's parts are numerous, and because specific inflation affects different components, there's a good chance that a car's component has more inflation than other products in the economy. And because inflation has an expectation driven aspect, suppliers that know inflation is happening is going to raise their prices more to combat it pre-emtively. This happens throughout the entire supply chain. Thus, the end result is that a car's inflationary pressure is higher. But that's just a theory - an inflation theory...
- eloisant 1y ago
  If the cars prices simply follow inflation, then there is no point in writing an article about why car prices in particular have gone up. Just write about inflation in general. Energy costs going up, raw materials costs going up, employees asking for raises because of the higher cost of living... And you have an explanation not just for cars but all industries.
- scotty79 1y ago
  Inflation is a result of too much money being created than what is needed by the growth of the economy. Average price increase that we use to estimate it is just a useful proxy. Inflation is always the main contribution to price increase. It only makes sense to compare price raise above or below inflation if you want to unearth factors specific to any given product or industry.
  - habnds 1y ago
    Inflation is completely possible with no change in money supply. This is handled in economics with the idea of the "velocity of money" which conceptually captures the large range of factors by which prices can increase due to factors beyond money supply, for example an energy price shock or changing consumer and business expectations that result in changes in spending and investment patterns.
    - weberer 1y ago
      In theory, sure. But in practice the money supply has nearly quadrupled since 2005. https://www.investopedia.com/terms/m/m2.asp https://www.investopedia.com/terms/m/m2.asp https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/M2SL
      - habnds 1y ago
        $1 in Jan 2005 is only 1.69 today, not $4 because the velocity of money has decreased dramatically as it has pooled towards the top of the income/wealth spectrum where it doesn't get spent or productively invested.
        scotty79 1y ago
        Bulk of it is that, but some of it is that larger economy needs more money to run. So while there was 4 food money supply increase the legitimate demand also increased somewhat. Exact numbers might be hard to pinpoint because we tend to measure economy in dollars but still it wouldn't be $4 even if the rich didn't get disproportionately wealthy from this supply.
- moconnor 1y ago
  No. Inflation is what we call the value of money going down. As evidenced by needing to part with more of it in exchange for a standard basket goods. It is fundamentally different to ask whether cars cost more because money is worth less, or whether cars cost more because we are making them less efficiently. The ancestor comment points out that most of the change can be attributed to the former and as cars are only a small percentage of the inflation basket then it is reasonable to conclude that this is indeed the prime reason for the price rise. The fundamentals of civilization would be a lot clearer if we measured the value of things in energy instead of a floating currency.
  - roenxi 1y ago
    Or, to put it another way, going by the thread ancestor we expect the price of cars to have risen around 26.2% due to currency devaluation. If the price of cars has risen 29.2% it is more or less pointless to look at the car industry for an explanation. The price has risen by roughly what we'd expect if they were doing what they've been doing with no real changes.

slg 1y ago

This can quickly turn into a philosophical debate rather than an economic one. Which value went up first, the chicken or the egg? Personally, I think the way it makes the most sense is thinking of inflation as the change in the value of money rather than the change in the cost of goods, in large part because costs rise for non-goods too. For example, my employer pays me more today than they did in 2019 despite my employer not selling any goods or buying many goods outside of laptops for their employees and they obviously don't care about my personal expenses when determining annual raises.

mlyle 1y ago

Saying you can't compare car prices to inflation because cars are in the CPI... We're really doing this? New cars make up about 4% of the CPI, and used cars around 3%, so together they’re only a small part of the inflation basket. If new car prices doubled tomorrow and nothing else changed, headline inflation would rise by about 4%, but car prices would have increased 92% relative to inflation. Inflation measures the decline in the value of money over time. If car prices rise significantly more or less than that decline can explain, that’s meaningful. If they don't... that's not.

bravesoul2 1y ago

For affordability the real question is median or mode wage inflation or deflation.

lostlogin 1y ago

> So it's pointless to compare car prices to inflation because they are part of the basis of the measure. Hence why they track closely. What? So how do you use the CPI? To measure things no one ever buys?