4 ms·

This is essentially how inflation is calculated. Instead of just a big mac, an entire basket of predetermined everyday items and services are watched for change

This is essentially how inflation is calculated. Instead of just a big mac, an entire basket of predetermined everyday items and services are watched for changes and the fluctuation in prices are averaged for a domestic locale giving us the consumer price index. Then the numbers of the previous CPI are compared to the current. Also, some people have taken to using the "iPod index" or really any uniform product that is widely available and standardized.

magicmu 11y ago
Interesting. Is there an existing standard for what everyday goods are used in determining inflation? I understand the usefulness of a "quick 'n dirty" gauge like this big mac index (or the iPod index you mentioned), but I'd be surprised if there isn't some standard set of goods which are watched as general indicators of inflation.
- dragontamer 11y ago
  Its pretty obvious if you read a CPI report yourself. http://www.bls.gov/cpi/cpid1505.pdf http://www.bls.gov/cpi/cpid1505.pdf Page 6 has the list and the weights of all goods per category. Housing is 42% of the CPI index, for example. Urban consumers vs Rural consumers are combined together, but the later tables split them out again. People generally only talk about the single CPI number as an indicator in inflation. But a lot of work (and tables) go into that number.
  - fennecfoxen 11y ago
    Additionally, depending on what you're trying to measure, there are a variety of different sorts of ways to adjust for inflation. The CPI is a measure of consumer prices, and used by the Fed as a target for inflation in order to maintain price stability, but there are others: http://www.measuringworth.com/uscompare/ http://www.measuringworth.com/uscompare/ The CPI is flawed, of course, like any attempt to turn 300 million peoples' worth of purchases into a single number. The Federal Reserve itself thinks that it's a little bit on the high side, not doing enough to adjust for the changes that occur when better products are introduced or when people change their purchasing behavior (e.g. switching to generic products): http://www.frbsf.org/economic-research/publications/economic-letter/1997/may/bias-in-the-cpi-roughly-right-or-precisely-wrong/ http://www.frbsf.org/economic-research/publications/economic... > a lot of work (and tables) go into that number. Economics is a whole field of study.
    - dragonwriter 11y ago
      > The CPI is flawed, of course, like any attempt to turn 300 million peoples' worth of purchases into a single number. The CPI doesn't even in theory try to do that, which is why it includes CPI-U, CPI-W, and C-CPI-U, each of which is tracked raw and seasonally adjusted, and each of which contains numerous measures (not a single number), the most frequently used of which seem to be the "all items", "all items less food and energy", "food", "energy", and "gasoline" components. (And all of which relate to US urban consumers -- for CPI-U and C-CPI-U -- or a subset thereof -- for CPI-W -- which are less than 300 million people.)
  - magicmu 11y ago
    Very cool, thanks so much for the link!
- spacecowboy_lon 11y ago
  Its actually a very complex area and the setting of inflation measures is open to gaming and political pressure. For example The last UK government didn't like the new CPIH index and the ONS (office of national statistics) was told to go away and try again.
- vonklaus 11y ago
  There is a standard but it changes with the times and the location. As indicated below it can be manipulated by adding or removing items that fluctuate wildly. There is a lot of disagreement about whether it is a good measure, what to include, and how to use it once it has been measured. The CPI, in America at least, is literally thousands of items. Probably stuff like bus pass, bread, milk, a hammer a Daisy Red Ryder BBGun, etc. Obviously a the bbgun was a joke, but I wouldn't be surprised if bullets or ammo made the cut.
  - logfromblammo 11y ago
    I would certainly put a brick of .22LR cartridges in the US basket, along with a box of 12ga shotgun shells, if nothing else. When you change the items in the basket, you make the index basically incomparable with previously used measures. That is what makes it such a juicy target for politicians. And you have to change it at some point or another, because new products get invented. For instance, if your basket does not now contain a month of cellular phone service, it needs to be updated.
- ucaetano 11y ago
  The standard is not a list of products, but the idea that the basket should contain items that represent the consumption of either companies or the public reasonably well. This means the basket might differ from country to country, because consumption patterns are different.
amyjess 11y ago
> Also, some people have taken to using the "iPod index" or really any uniform product that is widely available and standardized. I also remember seeing something similar using the average cost of a pint of beer as a percentage of an average soldier's wages. Specifically, I remember people using it to compare the economies of fantasy worlds to our own.
heynk 11y ago
This Planet Money episode explains this well, and walks through a day in the life with one of the people who actually walks around and monitors prices. http://www.npr.org/sections/money/2010/10/22/130757997/the-friday-podcast-the-price-of-lettuce-in-brooklyn http://www.npr.org/sections/money/2010/10/22/130757997/the-f...
xasos 11y ago
Exactly - The BLS takes a selection of 400 common household items to calculate the rate of inflation [0]. It's really quite interesting what items they include and their thought process behind it. [0] http://www.bls.gov/dolfaq/bls_ques3.htm http://www.bls.gov/dolfaq/bls_ques3.htm
theseatoms 11y ago
Choice of product is very important, as illustrated here: https://twitter.com/pmarca/status/620814301289316352 https://twitter.com/pmarca/status/620814301289316352
- briholt 11y ago
  Interesting. The life-giving essentials like food and healthcare have increased, while superfluous things like toys and TVs have decreased. (With the exception maybe being clothing). Good news if working-class families can figure out how to convert their 40-inch plasma TV into a defibulator.
  - ori_b 11y ago
    Also: Stuff seems to be getting cheaper, services seem to be getting more expensive.

magicmu 11y ago

Interesting. Is there an existing standard for what everyday goods are used in determining inflation? I understand the usefulness of a "quick 'n dirty" gauge like this big mac index (or the iPod index you mentioned), but I'd be surprised if there isn't some standard set of goods which are watched as general indicators of inflation.

dragontamer 11y ago
Its pretty obvious if you read a CPI report yourself. http://www.bls.gov/cpi/cpid1505.pdf http://www.bls.gov/cpi/cpid1505.pdf Page 6 has the list and the weights of all goods per category. Housing is 42% of the CPI index, for example. Urban consumers vs Rural consumers are combined together, but the later tables split them out again. People generally only talk about the single CPI number as an indicator in inflation. But a lot of work (and tables) go into that number.
- fennecfoxen 11y ago
  Additionally, depending on what you're trying to measure, there are a variety of different sorts of ways to adjust for inflation. The CPI is a measure of consumer prices, and used by the Fed as a target for inflation in order to maintain price stability, but there are others: http://www.measuringworth.com/uscompare/ http://www.measuringworth.com/uscompare/ The CPI is flawed, of course, like any attempt to turn 300 million peoples' worth of purchases into a single number. The Federal Reserve itself thinks that it's a little bit on the high side, not doing enough to adjust for the changes that occur when better products are introduced or when people change their purchasing behavior (e.g. switching to generic products): http://www.frbsf.org/economic-research/publications/economic-letter/1997/may/bias-in-the-cpi-roughly-right-or-precisely-wrong/ http://www.frbsf.org/economic-research/publications/economic... > a lot of work (and tables) go into that number. Economics is a whole field of study.
  - dragonwriter 11y ago
    > The CPI is flawed, of course, like any attempt to turn 300 million peoples' worth of purchases into a single number. The CPI doesn't even in theory try to do that, which is why it includes CPI-U, CPI-W, and C-CPI-U, each of which is tracked raw and seasonally adjusted, and each of which contains numerous measures (not a single number), the most frequently used of which seem to be the "all items", "all items less food and energy", "food", "energy", and "gasoline" components. (And all of which relate to US urban consumers -- for CPI-U and C-CPI-U -- or a subset thereof -- for CPI-W -- which are less than 300 million people.)
- magicmu 11y ago
  Very cool, thanks so much for the link!
spacecowboy_lon 11y ago
Its actually a very complex area and the setting of inflation measures is open to gaming and political pressure. For example The last UK government didn't like the new CPIH index and the ONS (office of national statistics) was told to go away and try again.
vonklaus 11y ago
There is a standard but it changes with the times and the location. As indicated below it can be manipulated by adding or removing items that fluctuate wildly. There is a lot of disagreement about whether it is a good measure, what to include, and how to use it once it has been measured. The CPI, in America at least, is literally thousands of items. Probably stuff like bus pass, bread, milk, a hammer a Daisy Red Ryder BBGun, etc. Obviously a the bbgun was a joke, but I wouldn't be surprised if bullets or ammo made the cut.
- logfromblammo 11y ago
  I would certainly put a brick of .22LR cartridges in the US basket, along with a box of 12ga shotgun shells, if nothing else. When you change the items in the basket, you make the index basically incomparable with previously used measures. That is what makes it such a juicy target for politicians. And you have to change it at some point or another, because new products get invented. For instance, if your basket does not now contain a month of cellular phone service, it needs to be updated.
ucaetano 11y ago
The standard is not a list of products, but the idea that the basket should contain items that represent the consumption of either companies or the public reasonably well. This means the basket might differ from country to country, because consumption patterns are different.

amyjess 11y ago

> Also, some people have taken to using the "iPod index" or really any uniform product that is widely available and standardized. I also remember seeing something similar using the average cost of a pint of beer as a percentage of an average soldier's wages. Specifically, I remember people using it to compare the economies of fantasy worlds to our own.

heynk 11y ago

This Planet Money episode explains this well, and walks through a day in the life with one of the people who actually walks around and monitors prices. http://www.npr.org/sections/money/2010/10/22/130757997/the-friday-podcast-the-price-of-lettuce-in-brooklyn http://www.npr.org/sections/money/2010/10/22/130757997/the-f...

xasos 11y ago

Exactly - The BLS takes a selection of 400 common household items to calculate the rate of inflation [0]. It's really quite interesting what items they include and their thought process behind it. [0] http://www.bls.gov/dolfaq/bls_ques3.htm http://www.bls.gov/dolfaq/bls_ques3.htm

theseatoms 11y ago

Choice of product is very important, as illustrated here: https://twitter.com/pmarca/status/620814301289316352 https://twitter.com/pmarca/status/620814301289316352

briholt 11y ago
Interesting. The life-giving essentials like food and healthcare have increased, while superfluous things like toys and TVs have decreased. (With the exception maybe being clothing). Good news if working-class families can figure out how to convert their 40-inch plasma TV into a defibulator.
- ori_b 11y ago
  Also: Stuff seems to be getting cheaper, services seem to be getting more expensive.