Economics Questions

Re: Why Does The CPI Increase So Slowly?

Sieben — Sun, 10 Oct 2010 01:59:14 GMT

mashah:
As a counterpoint to claims of monkeying around with the CPI, why not take a look at the GDP deflator instead? That's calculated in a much more consistant way than CPI is, and doesn't leave anything out.

Except free time, improving quality of goods and services, improving durability of goods and services (if a washing mashine lasts twice as long, or a dentist super-cleans your teeth so you only see him once/yr)... Deflated GDP just measures volume of trade. Who cares about quantity?

Re: Why Does The CPI Increase So Slowly?

resist272727 — Sun, 10 Oct 2010 01:48:36 GMT

"Inflation isn't an increase in prices, it is an increase in the supply of money, a rise in prices is just an effect."-Mtn Dew

Increase of the money supply isn't the only cause of price inflation.

Re: Why Does The CPI Increase So Slowly?

Scrooge McDuck — Fri, 08 Oct 2010 17:08:29 GMT

Inflation isn't an increase in prices, it is an increase in the supply of money, a rise in prices is just an effect.

Okay, my mistake. Why is that correct, and it being an increase in the supply of money greater than the increase in output incorrect?

Re: Why Does The CPI Increase So Slowly?

mahsah — Fri, 08 Oct 2010 16:19:55 GMT

As a counterpoint to claims of monkeying around with the CPI, why not take a look at the GDP deflator instead? That's calculated in a much more consistant way than CPI is, and doesn't leave anything out.

Re: Why Does The CPI Increase So Slowly?

xahrx — Fri, 08 Oct 2010 14:16:48 GMT

As another example of CPI being useless, I believe before the housing bubble mortgage payments were taken out of the calculation and rents were put in, which means right before housing prices spiked one of the key indicators that there was a bubble, that rents were totally out of line with the rising housing prices, was pulled out. Measuring inflation via CPI is two major mistakes rolled into one judgement: one, that inflation is rising prices when in reality it is an increase in the supply of money and credit which has a non-neutral affect on prices, meaning some will go up and some down; two, that a reliable indicator of 'inflation' can be scientifically determined when in reality the basket of goods to measure it is technically impossible to construct because it literally varies from person to person in terms of actual content and weight assigned. Two people who continually buy the same thing every month will respond differently to price increases depending on the importance they assign to each thing. So say two guys both buy one book, four steaks, and two tanks of gas each week, all the same prices. Even if the prices of all those goods went up exactly 10%, the two guys are likely to economize in different ways, one foregoing gas and the other a book, or a steak or some other combination. In other words the CPI only matters as an index if it reflects the goods you buy and the importance you assign to each.

So it's a two-fold issue. One, rising prices is not a good indicator/definition of inflation and never has been. However, if you change the definition of inflation from an increase in money and credit to rising prices, you get to obfuscate responsibility for the problem and plausibly for many blame it on the kid in the store with the price gun and his boss. Two, it is impossible to construct a meaningful economic indicator, and even if you could make one, the information it would give you is only as good as the theory with which you analyze it. But that runs counter to the whole Mousilini inspired attempts to plan the economy from which GDP and other economic indicators were originally born.

Re: Why Does The CPI Increase So Slowly?

Mtn Dew — Fri, 08 Oct 2010 13:19:52 GMT

Inflation isn't an increase in prices, it is an increase in the supply of money, a rise in prices is just an effect.

Re: Why Does The CPI Increase So Slowly?

Scrooge McDuck — Fri, 08 Oct 2010 07:08:16 GMT

As a quick aside, can someone explain to me how the Austrian view of inflation as an increase in prices is correct, and how the neoclassical view that inflation is tied to the price level and output is wrong?

Re: Why Does The CPI Increase So Slowly?

Esuric — Thu, 07 Oct 2010 23:10:12 GMT

They continuously change the way the calculate it and it only measures general price inflation of certain consumer goods.

Re: Why Does The CPI Increase So Slowly?

geewhzz — Thu, 07 Oct 2010 22:48:29 GMT

what about rising stock prices, college tuitions, health care costs, price of gold/silver etc. ?

Re: Why Does The CPI Increase So Slowly?

Bogart — Thu, 07 Oct 2010 22:48:04 GMT

It doesn't. The CPI is an outright lie. The wise and unfallable govenrment statisticians adjust it for increases in capability and quality. For example you purchase a $20000 server today when that server costs $20,000 2 years ago. Realizing that these are the same but not really, the CPI dudes determine that that server really costs $15000 because the 2 year old model now costs $12000.

A better measure of how high inflation is, is the size of the Feds Balance Sheet or Excess Reserves if you believe the correct definition of inflation which is the increase in the supply of money and/or credit.

If you are not of the Austrian ilk and think inflation has anything to do with prices then all of these seem to me to be better measures of inflation than the CPI, CORE CPI or PPI:

1. Price of gold in dollars, or its 5 year and/or 10 year moving averages.

2. The 5 or 10 year moving average in the price of a barrel of crude oil or copper.

Re: Why Does The CPI Increase So Slowly?

mahsah — Thu, 07 Oct 2010 22:44:43 GMT

I see two reasons for this:

1. Much of the money printed by the Fed has not entered the hands of consumers, and is instead sitting on reserve with the Fed (see the still-high excess reserve levels). This may end with the Fed's POMO program or if they decide to ease a second time.

2. Some parts of the CPI are experiencing deflation and others are experiencing inflation. Here's a good chart (if you like to play with charts the St. Louis Fed will keep you busy for hours).

Why Does The CPI Increase So Slowly?

limitgov — Thu, 07 Oct 2010 21:45:06 GMT

free market economist keep saying inflation, inflation, inflation! Yet, the CPI seems to barely rise?

A) It doesn't include food and energy, I get that.

B) People, can't afford the other stuff...so the prices aren't increasing....

I get A, but B? I see people buying non food and non energy stuff all the time...don't give me that....

why do free market people keep screaming inflation, inflation, but CPI is not shooting up?