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Re: Why Inflation Is Much Worse than the Headline Numbers Suggest 

By: Decomposed in POPE 5 | Recommend this post (4)
Sun, 03 Feb 19 1:55 PM | 46 view(s)
Boardmark this board | Pope 5 		Msg. 22882 of 62138
(This msg. is a reply to 22874 by capt_nemo)
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Nemo:

Re: "NO SHIT!!!!!!!!!!!!!!"The author has reached the right conclusion, but for the WRONG reason. He argues that the average inflation rate "masks dramatic cost increases in the purchases Americans have the least discretion over." Not true. The CPI market basket is measured by 24,000 participants who keep a journal of everything they buy annually. Frequently bought items are measured by another group of 12,000 who journalize their food, personal care, etc expenses on a bi-weekly basis. This all gets mashed together with an algorithm that both measures the price change AND assigns weights to the importance of the product. Because of the heavier weights applied to the items bought more often, your author is wrong.

But he still drew the correct conclusion. Even a stopped clock gets it right twice a day, eh?.

Here's what's actually going on: The CPI is utter nonsense. It's useless, except as a political tool. It can't measure the inflation rate because inflation is a SYSTEM WIDE thing. A sampling of purchases, even if the sample group numbers in the tens of thousands as it does here, will never examine more than the tiniest fraction of the billions of products that exist and the hundreds of trillions of financial transactions. The price changes of a few of the most commonly bought items does not give meaningful insight into what happened to the price of things as a whole.

That's why it's wrong. The bigger flaw - the reason the CPI fails to be a useful measure of pricing forces - is that it assumes that prices shouldn't change if there is no inflation. But that's wrong. If there is no inflation, prices should be dropping at a fast pace due to enormous annual improvements in the efficiency of production.

If a suit cost $20 in 1900, that same suit likely cost about $400 in 2000. That means there was a 20-fold price increase on that item over the course of a century, which is about right. The CPI might show you that. HOWEVER, it completely misses the point that over the course of a century, suits should be cheaper to make. Much cheaper. We've streamlined the ordering and delivery of parts and supplies, automated the production, introduced packaging, marketing, distribution and sales technologies that couldn't have even been dreamed of a hundred years ago. So the prices of suits (and everything else) should have gone DOWN over that time. It is, therefore, very misleading to say that prices have gone up 20-fold. People might look at that and conclude, "Oh, a century is a long time. That's not SO bad."

To reflect the reality of what has happened, what economic analysts should be doing is comparing current prices to the old price adjusted to reflect productivity improvements. Unfortunately, the latter is impossible to ascertain. How can we know the price impact of productivity improvements SYSTEM-WIDE? We can't just sample a bunch of consumers to get that.

If we could, the end result would tell us just how severely the government has hurt us. It would be nice to know. My guess is that the impact of stolen productivity gains probably dwarfs the impact of the stolen monetary buying power. Without government manipulation, the $20 suit from 100 years ago might have cost ONE DOLLAR or less today, not four hundred dollars. That's at least a FOUR-HUNDREDFOLD INCREASE. And that's the real economic cost of government.

Here's a simpler analogy: The CPI tells people that their pasta dinner costs double what it did fifteen years ago, but since their salaries have gone up almost that much too (they haven't) they're okay with that. Of course, the higher salaries have also put people into higher tax brackets, so their take-home pay hasn't gone up anywhere near as much as their dinner costs... but that's a topic for another day. What the CPI isn't telling people is that due to government, they're not only paying more for dinner, they are also still eating pasta instead of lobster and working the same 40 hours per week that their parents did. Government has gobbled up both the buying power of the currency and the opportunity to have easier lives. It's a shame that more people don't realize this.

I probably didn't explain that very well, but that's the best you're going to get from me at this hour. The author's conclusion is right. His explanation is wrong.




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Gold is $1,581/oz today. When it hits $2,000, it will be up 26.5%. Let's see how long that takes. - De 3/11/2013 - ANSWER: 7 Years, 5 Months


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The above is a reply to the following message:
Why Inflation Is Much Worse than the Headline Numbers Suggest
By: capt_nemo in POPE 5
Sun, 03 Feb 19 12:11 PM 		Msg. 22874 of 62138

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The worst ghost inflation I have ever seen. They are REAL good at hiding reality!!!!!!!!


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Submitted by Taps Coogan on the 3rd of February 2019 to The Sounding Line.

The following chart, from the cost estimation website HowMuch.net, helps visualizes a reality that has plagued most Americans for the past couple decades: real price inflation is much worse than the headline CPI numbers suggest.

Based on CPI data and hourly earnings, the following chart shows the change in affordability of a range of common goods and services since 1998.

Official statistics suggest that the rate inflation has averaged a subdued 2.15% since 1998. In reality, the average inflation rate masks dramatic cost increases in the purchases Americans have the least discretion over.

Imported consumer goods like TVs, computers, toys, and phones have gotten significantly more affordable and more feature rich, largely thanks to the offshoring of American manufacturing to wherever labor is cheaper. To a lesser extent the same phenomenon has kept cars, furniture, and clothing costs roughly constant. Meanwhile, the price of anything that can’t be imported from places like China has skyrocketed. Food, housing, medical care, child care, college tuition and textbooks, and hospital stays have all increased more than the core CPI inflation averages. Meanwhile, quality has remained flat at best. In other words, official inflation statistics don’t look bad because they are using cheap consumer goods like toys and TVs to offset large price increases in more expensive and harder to do without things like housing, food, medicine, and education.

With the US now placing tariffs on many of the cheap imports that have kept the CPI numbers so low, one has to wonder how much longer the official headline inflation numbers, and the Federal Reserve, will be able to ignore the true rate of inflation.

NO SHIT!!!!!!!!!!!!!!


http://thesoundingline.com/why-inflation-is-much-worse-than-the-headline-numbers-suggest/

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