Inflation higher than you think.

[TakeAStepBack]

What's more remarkable, is that Austrian scholars know a bubble because understanding the unseen of others attempts to equate always surfaces as the artificial factor in what is other wise a social/action endeavor of humans. Which is why they should start listening instead of being indignant.

But inflation is a tool of the state and indoctrination into the state is required to maintain the illusion so we go round and round.

 

[Oddball]

Well, if you know Austrian school economics you should know that economics is not a hard science like physics. It is a social science in the vein of human action and as such, can not be quantified with the same tools used in natural sciences.

I always get a kick out of Keynesian witch doctors, pretending that 6 billion people can be made to dance like the Pythagorean theorem.

A kick, that is, until the moment that I realize that they're serious....Then it scares the living shit out of me.

 

[ThinkCritically]

Rap battle Keynes vs. Hayek

 

[TakeAStepBack]

Well, if you know Austrian school economics you should know that economics is not a hard science like physics. It is a social science in the vein of human action and as such, can not be quantified with the same tools used in natural sciences.

I always get a kick out of Keynesian witch doctors, pretending that 6 billion people can be made to dance like the Pythagorean theorem.

A kick, that is, until the moment that I realize that they're serious....Then it scares the living shit out of me.

I know. They break it and then we try it again willfully. It's that human thing I don't quite wrap around myself.

 

[Widdekind]

@Paulie,

"inflation" is a general rise in Prices, across the board -- "a rising tide"

"Price shocks" are specific hikes in particular Prices, only here-or-there -- "a rogue wave"

per DSGE, you may be conflating the former, "which makes everybody grumble", with the latter, "which makes a few people scream & shout"

inflation is occurring (a few percent); sporadic Price-shocks also occur (25-50%). Because you are "already grumbling" (over inflation), you may be primed to "scream & shout" (over paint Prices). But, while they are co-inciding & co-occurring, they are not economically related -- your paint Prices would have hiked by half, even under deflation (Demand is sky-rocketing, for China & India car markets, whilst Supply is stalling, for want of investment).

 

[Paulie]

@Paulie,

"inflation" is a general rise in Prices, across the board -- "a rising tide"

"Price shocks" are specific hikes in particular Prices, only here-or-there -- "a rogue wave"

per DSGE, you may be conflating the former, "which makes everybody grumble", with the latter, "which makes a few people scream & shout"

inflation is occurring (a few percent); sporadic Price-shocks also occur (25-50%). Because you are "already grumbling" (over inflation), you may be primed to "scream & shout" (over paint Prices). But, while they are co-inciding & co-occurring, they are not economically related -- your paint Prices would have hiked by half, even under deflation (Demand is sky-rocketing, for China & India car markets, whilst Supply is stalling, for want of investment).

Only here or there? Every single thing I need to either work, get to work, or feed myself, is costing me more.

Idiots in here see nominal numbers in the CPI and that's good enough for them.

I see inflation.

 

[itfitzme]

So you're calling the Obama administration a bunch of LIARS? That's RACIST! You're a bigot! You're also closed-minded! You're not being fair! You must be a right wing extremist! I'm going to report you to Obama's internet police!

Wow, I need a shower. ACTING like a bedwetting leftist Obamanista makes me feel DIRTY.

This is one of the dumbest f'in comments I've ever read.

It's the same CPI-U that the BEA has been publishing for decades. The BEA also has dozens of other measures of inflation that they publish. Just as well, the PCE is available from the Fed Reserve. And all of them have been around through every administration.

 

[itfitzme]

The CPI is not an accurate measure of inflation, someone anyone who is not rich realizes every time they go shopping.

I totally agree that daily and monthly expenditures are very important as they do affect us in the wallet.

But, you're interpretation is incorrect. It is clear that they both track average inflation the same. They are equally accurate because they average the same.

The EPI is more volatile. Notice how it goes lower just as it goes higher. As such, it is less precise for the average rate of inflation.

These are accurate and precise definitions of accurate and precise. "Accurate" means that the measure averages about the real thing it is measuring. "Precise" means that the measure is less volatile about whatever its average is.

Then there is a simple question of what basis is there to claim the EPI is "better"? Better at what? What's the methodology?

I just went shopping and prices were lower from the week before. Maybe it's got to do with where I live and shop, don't know.

The BEA has hundreds of tables of information regarding the rate of inflation. The is the CPI-U, CPI-W, CPI-U less housing and energy, and hundreds of detailed tables.

Here is a full report of the CPI and components, readily available on the BEA website, http://www.bls.gov/cpi/cpid1203.pdf. It is a hundred and fifteen pages. It covers every single detailed. Wisky at home was -1.2. Women's dresses was 8.8. Hair, dental, shaving, and miscellaneous personal care products was 1.5. Flour and prepared flour mixes was 4.1. Fresh sweetrolls, coffeecakes, doughnuts was 5.5. Uncooked ground beef was 10.5. (holly crap). Eggs was -13.7. (We should have been eating more eggs). Other poultry including turkey was 12. Dried beans, peas, and lentils was 19.5.

This alone makes the premise, that the CPI-U is not precise or accurate, simply absurd.

Now, check out The Everyday Price Index (“EPI&#8221 Is Flawed | TheArmoTrader

This so called "inflation index" obviously puts significant weighting on "gas" tremendously over the other components. Had all the components been weighted equally (11% weighting for each), the "EPI" would have averaged out to 4.25%, which is a little more than half of what the real EPI index came out to.

Especially when that index (the EPI) only measures "39 percent of total household spending". So what they are basically saying here is that the inflation rate for 39% of my expenses is 8.2%. They are totally disregarding the other 61%. Doesn't sound like a smart thing to do.

Measuring just 39% of my expenses to gauge inflation is not really a great way to measure the inflation rate. 61% is a statistically significant portion of my expenses.

Matt Yglesias over at Slate.com made this very same point. To sum up his post (I suggest reading it, its really short), he basically argues that:

* Non-Everyday goods make up a large portion of our yearly expenses because they are more expensive.

* We buy and deal with "everyday goods and services" more frequently, thus giving us the perception that inflation is higher than we think.

* Ironically, everyday goods (like Food, Gas) are more prone to inflation from supply-shocks & demand increases from the global economy than from changes from "debasement" monetary policy by the $FED. Those expensive items are a better tell for monetary inflation.

All in all, the EPI is less precise. It is simply another methodology for measuring part of inflation. And it is questionable if it is all that valuable.

What you can do is take the CPI-U, subtract the yearly average, multiply by ten, then add the yearly average in. That will get you the same thing as the EPI.

Why not just go with shadowstats.com? That will give you a really big number. You'll like that, it's really big.

Or, rather, seeing as what really want is a CPI-ME, you should just calculate your own using your grocery list.

----

p.s. I was discussing the changes in the standard of living with Ken Stewart at the BEA. Here is what he says about how quantities and prices affect the CPI.

Within what we call a "weighting period", we effectively assume a fixed quantity of cars, bananas, etc when we add up indexes across items.

But, periodically, we do take a survey of expenditures. If the quantity of bananas or whatever has changed, we ‘link’ that into the index; i.e., we do not let the change in quantity affect the change in price in bananas, etc.

Notice, though, that over time the relative “weight” of an item could grow. Let’s say, for example, that the relative weight of bananas grows over time, because people spend more on bananas.

While we effectively don't let the quantity of bananas effect the rate of inflation for bananas, it now has a bigger 'weight' or relative importance in overall inflation than it used to, and so the future price change for bananas may well have a bigger effect than it used to on the overall rate of inflation.

So I guess one could say that, while the increasing quantity of bananas purchased does not affect the banana index, the resulting higher relative weight of bananas over time could make bananas a more important influence on overall price change in the future.

Yeah, that made it as clear a mud.

 

[itfitzme]

And the theory that "SUBSTIUTION" needs to be taken into acount when computing CPI is a perfect example of how state economists are moving the goalposts to obfucate the truth.

If steak cost X dollars one week, and it cost $X + Y dollars the next week, claiming that substiuting hamburger for steak means there was NO PRICE RISE is intellectual hooey!

Pretending that fuel prices are somehow not part of the cost of living, or that those rising prices are captured in everything else is another example of the flim-flammery of our reporting agencies.

I don't think it's intellectual hooey at all. The CPI is meant to measure an average basket of goods that a consumer might actually buy. Wen people substituted out of Compact Discs into less-expensive MP3's, or when people substitute out of old and expensive computer memory and into less expensive more modern memory, why shouldn't the CPI reflect that?

How often do you buy new clothes, a new car, and a new TV? Factoring all of those into an inflation index distorts it because high ticket items have been going down in price faster than every day items have been going up.

Then there is the simple problem that the CPI doesn't substitute hamburger for steak, or any substitution that even resembles this.

Someone might consider actually making the effort to READ about the CPI methodologies on the BEA site. And, if your still not clear, you can actually email them and they will be happy to explain things.

 

[zonly1]

I don't think it's intellectual hooey at all. The CPI is meant to measure an average basket of goods that a consumer might actually buy. Wen people substituted out of Compact Discs into less-expensive MP3's, or when people substitute out of old and expensive computer memory and into less expensive more modern memory, why shouldn't the CPI reflect that?

How often do you buy new clothes, a new car, and a new TV? Factoring all of those into an inflation index distorts it because high ticket items have been going down in price faster than every day items have been going up.

Then there is the simple problem that the CPI doesn't substitute hamburger for steak, or any substitution that even resembles this.

Someone might consider actually making the effort to READ about the CPI methodologies on the BEA site. And, if your still not clear, you can actually email them and they will be happy to explain things.

you are naive to except any explanation from a gubermint entity to justify what they make so you and all can pay for there existence.

 

[Widdekind]

Only here or there? Every single thing I need to either work, get to work, or feed myself, is costing me more.

yes, Prices across-the-board are rising, so you begin "grumbling"...

but (presumably) Prices across-the-board are not rising by half, like paint ? There is an economic difference, between paint Prices spiking (specifically), and every Price constantly creeping higher (generally).

even if Prices were deflating (negative CPI), your paint Prices would still have spiked by half -- they spiked b/c of Supply-and-Demand, not because of Inflation. Only when you start saying "everything" are you talking about general Price inflation.

are you saying, that all your Prices have increased by half, over the past year ?

 

[Widdekind]

The EPI is more volatile....

* We buy and deal with "everyday goods and services" more frequently, thus giving us the perception that inflation is higher than we think.

* Ironically, everyday goods (like Food, Gas) are more prone to inflation from supply-shocks & demand increases from the global economy than from changes from "debasement" monetary policy by the $FED.

the EPI measures "high-profile inflation", on "everyday high-volume-of-sales items". the EPI plausibly reflects perceived inflation.

 

[editec]

Then I guess in all fairness we should tie Social Security cost of living increases to the higher, 'real', rate.

Well...no that wouldn't make sense when computing the CPI.


But it definitely would be part of a study to see how rising or falling SS incomes COMPARE to the rising prices.

What you would find were you to do that comparitive study is that the COLAs in social security are not keeping up with the real CPI.

That means that the purchasing power of people receiving SS is falling.

COLAs are failing to keep up with real inflation because they are based on poorly (or falsely) designed CPI studies

 

[DSGE]

Then I guess in all fairness we should tie Social Security cost of living increases to the higher, 'real', rate.

Well...no that wouldn't make sense when computing the CPI.


But it definitely would be part of a study to see how rising or falling SS incomes COMPARE to the rising prices.

What you would find were you to do that comparitive study is that the COLAs in social security are not keeping up with the real CPI.

That means that the purchasing power of people receiving SS is falling.

COLAs are failing to keep up with real inflation because they are based on poorly (or falsely) designed CPI studies

Not quite. They're failing to keep up with inflation because COLAs are done with the CPI-W, not the CPI-U. That is, they're adjusted by a wage index. So when everybody else's buying power falls, so do the COLA, and vice versa. I remember the reason for this being a good one, but I can't recall what it is. I'll think about it and get back to you.

 

[Widdekind]

COLAs are done with the CPI-W, not the CPI-U. That is, they're adjusted by a wage index.

so, SS COLA's are designed to "keep up with urban wage-earners", not "professional, managerial, and technical workers" (specifically excluded from the CPI-W). Simplistically, SS keeps up with "Blue Collar wages", not "White Collar salaries" ?

 

[pinqy]

So you're calling the Obama administration a bunch of LIARS? That's RACIST! You're a bigot! You're also closed-minded! You're not being fair! You must be a right wing extremist! I'm going to report you to Obama's internet police!

Wow, I need a shower. ACTING like a bedwetting leftist Obamanista makes me feel DIRTY.

This is one of the dumbest f'in comments I've ever read.

It's the same CPI-U that the BEA has been publishing for decades. The BEA also has dozens of other measures of inflation that they publish. Just as well, the PCE is available from the Fed Reserve. And all of them have been around through every administration.

Nitpick. The BEA doesn't publish the CPI, BLS does. BEA reweights the CPI data for the PCE which it uses as its deflator.

p.s. I was discussing the changes in the standard of living with Ken Stewart at the BEA. Here is what he says about how quantities and prices affect the CPI..

And Ken works at BLS, not BEA.

 

[itfitzme]

So you're calling the Obama administration a bunch of LIARS? That's RACIST! You're a bigot! You're also closed-minded! You're not being fair! You must be a right wing extremist! I'm going to report you to Obama's internet police!

Wow, I need a shower. ACTING like a bedwetting leftist Obamanista makes me feel DIRTY.

This is one of the dumbest f'in comments I've ever read.

It's the same CPI-U that the BEA has been publishing for decades. The BEA also has dozens of other measures of inflation that they publish. Just as well, the PCE is available from the Fed Reserve. And all of them have been around through every administration.

Nitpick. The BEA doesn't publish the CPI, BLS does. BEA reweights the CPI data for the PCE which it uses as its deflator.

p.s. I was discussing the changes in the standard of living with Ken Stewart at the BEA. Here is what he says about how quantities and prices affect the CPI..

And Ken works at BLS, not BEA.

You are correct, sir. It is the BLS. I didn't realize the error until I had already closed the page and went on.

The PCE is available at the Fed Reserve and I didn't commit to who actually calculated it, so no error there. Always helps to be non-committal

Still, good info on who does it and how it is done.

Thank for the edit.