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The problems with the CPI are mostly budgetary and bureaucratic. It took over a decade to work in warehouse sales, online and catalog sales are believed to be grossly underweighted still and there is a long list of other problems. Much of these problems could be avoided with longitudinal studies but that would create other problems such as gaming the survey, placebo effects and results that would annoy congress unduly.
And at least 1.6 points of the total 2.6 was due to inflation (likely more as energy and food price increases are not properly reflected).
The GDP figures are calculated in real dollars, not nominal terms.
iow in inflation adjusted dollars.
But there seems to be some kind of dislocation between the official inflation figures and reality. And the CPI is hardly an accurate measure of inflation on it's best day.
If we are gonna set COLAs based on inflation it seems as if we could develop a truly accurate index. Unless of course "we" would prefer that the public not know.
The GDP figures are calculated in real dollars, not nominal terms.
iow in inflation adjusted dollars.
But there seems to be some kind of dislocation between the official inflation figures and reality. And the CPI is hardly an accurate measure of inflation on it's best day.
If we are gonna set COLAs based on inflation it seems as if we could develop a truly accurate index. Unless of course "we" would prefer that the public not know.
Right! The real inflation is running at 4% to 5% and rising. The gov't numbers are a fraud.
The GDP doesn't use the CPI. They use the PCE (Personal Consumption Expenditures).
As for your claims of inaccuracy...what is the basis of your claims?
Take 30,000 people and pay them for all of their receipts.The problems with the CPI are mostly budgetary and bureaucratic. It took over a decade to work in warehouse sales, online and catalog sales are believed to be grossly underweighted still and there is a long list of other problems. Much of these problems could be avoided with longitudinal studies but that would create other problems such as gaming the survey, placebo effects and results that would annoy congress unduly.
What kind of longitudinal study do you think could be done with the CPI?
But not necessarily a conscious agenda. The legitimately employed and unemployed homeless are not effectively tracked by the employment surveys. Likewise there are trillions of dollars of state and local tax revenues tied up in real estate valuations not to mention bank assets and IRS revenues. Direct and indirect revenues from commodities have a similar effect. UE numbers from U3-U6 could quite easily have a 20% bias (10.8 instead of 9% U3) simply from cellphone only households cutting down on their per minute charges when unemployed. All data series have drawbacks and budget constraints. While those drawbacks and constraints can be made different from the ones we have now they will persist.The GDP doesn't use the CPI. They use the PCE (Personal Consumption Expenditures).
As for your claims of inaccuracy...what is the basis of your claims?
Just simple things like inflation should have registered something like -6% between June 2008 and January 2009. Housing values, which are a large chunk of our economy plummeted, while oil and food fell nearly 50% at the commodities level. Stocks took a large hit. The prices of real things declined dramatically and inflation figures never reflected those changes.
Statistics are seldom crafted to accurately mirror reality. They are almost always crafted to support some kind of agenda.
Housing only went down 0.3% in that period...that's looking at rent, owner's rental equivalence, utilities, repairs, etc. Housing prices were taken out a few decades ago in favor of rental equivalence because house prices also have an investment component and the CPI is only meant to measure consumption. So the shelter portion of the CPI isn't necessarily going to change as radically as home prices.The GDP doesn't use the CPI. They use the PCE (Personal Consumption Expenditures).
As for your claims of inaccuracy...what is the basis of your claims?
Just simple things like inflation should have registered something like -6% between June 2008 and January 2009. Housing values, which are a large chunk of our economy plummeted,
At the commodities level, not necessarily the consumer level. Food prices went up 2.7% from Jun 2008 to Jan 2009. Gas prices did plummet (-49%), but gasoline is only weighted at 2.9% of consumption. So overall the CPI only dropped 2.5% during that period.while oil and food fell nearly 50% at the commodities level.
Stocks and investment items are not consumer expenditures. The CPI did capture the radical changes of oil prices, but then apparel and electricity went up.Stocks took a large hit. The prices of real things declined dramatically and inflation figures never reflected those changes.
And at least 1.6 points of the total 2.6 was due to inflation (likely more as energy and food price increases are not properly reflected).
The GDP figures are calculated in real dollars, not nominal terms.
Take 30,000 people and pay them for all of their receipts.
Take the same number of people and just track their card and check receipts.
Either way you end up with at least some sort of data contamination: fees add to income or shifting to cash for privacy; are two forms of contamination. It would have to be compared to the normal CPI surveys and would mainly track changes in how and what is being purchased. Any way you collect the data observer effects contaminate the data series.
Housing only went down 0.3% in that period...that's looking at rent, owner's rental equivalence, utilities, repairs, etc. Housing prices were taken out a few decades ago in favor of rental equivalence because house prices also have an investment component and the CPI is only meant to measure consumption. So the shelter portion of the CPI isn't necessarily going to change as radically as home prices.The GDP doesn't use the CPI. They use the PCE (Personal Consumption Expenditures).
As for your claims of inaccuracy...what is the basis of your claims?
Just simple things like inflation should have registered something like -6% between June 2008 and January 2009. Housing values, which are a large chunk of our economy plummeted,
At the commodities level, not necessarily the consumer level. Food prices went up 2.7% from Jun 2008 to Jan 2009. Gas prices did plummet (-49%), but gasoline is only weighted at 2.9% of consumption. So overall the CPI only dropped 2.5% during that period.while oil and food fell nearly 50% at the commodities level.
Stocks and investment items are not consumer expenditures. The CPI did capture the radical changes of oil prices, but then apparel and electricity went up.Stocks took a large hit. The prices of real things declined dramatically and inflation figures never reflected those changes.
Well, "inflation" is not a set term...it's actually rather nebulous. The Austrian School, for example, ONLY defines inflation in terms of money supply. So it becomes a question of what you're trying to measure, and why. The CPI is meant to emulate a cost of living index. So for those purposes, consumption spending is entirely appropriate. As a GDP deflator, the Bureau of Economic Analysis uses the PCE instead...same data source as the CPI, but some different groupings and weights. (The FED uses the core PCE for interest rate calculations). For raw and intermediate goods, the PPI is used, and then there are import/export indexes for those.But inflation is not as simple as the change in the price of a shopping basket of goods. Inflation is the rate of devaluation of currency. And CPI does a poor job of measuring the rate of dollar value destruction.
Why? COLAs should reflect changes in the cost of living. Consumption goods is a good standard metric to use. You try factoring in investments, luxury goods, etc, and you'll be all over the place.COLAs would ideally be set to reflect inflation, not consumer price changes. Or more specifically COLAs would be used to maintain wage and benefit integrity against a devaluing dollar.
Why? COLAs should reflect changes in the cost of living. Consumption goods is a good standard metric to use. You try factoring in investments, luxury goods, etc, and you'll be all over the place.
Well, "inflation" is not a set term...it's actually rather nebulous.
And at least 1.6 points of the total 2.6 was due to inflation (likely more as energy and food price increases are not properly reflected).
The GDP figures are calculated in real dollars, not nominal terms.
There are couple ways to calculate GDP...
However I think it's done like this in US:
Total money spent (to taxable products - used not included ofc unless profit is made) X the inflation index.
The government skew these numbers A LOT by adjusting the inflation index, on the other hand since it's calculated as money spent and not actually products made, AFAIK if your storage changes from 10 000 to 0 due to inflation (that doesn't yet show up) that is labeled as growth. Or if you sell/ don't fix your capital that also doesn't get into the index, so you can get growth in one year out of thin air at the expense of long term growth. Net domnestic product is a bit better this way.
So, I am pretty confident the number is skewed, because the inflation index is skewed. Price increases always lag behind inflation, which causes phantom growth. (even if the CPI is dead on accurate, which I doubt).
Why? COLAs should reflect changes in the cost of living. Consumption goods is a good standard metric to use. You try factoring in investments, luxury goods, etc, and you'll be all over the place.
We disagree 100%. COLAs should ensure that benefits maintain their real world value vs currency. Food, energy, rents and real estate values are all highly regulated, often subsidized and their prices reflect as much. Just making sure that a benefit paid in dollars will buy as many apples or gallons of subsidized gas is not the same as making sure that benefits maintain the same real world value over decades.
But you can easily see the agenda that drives the dominating rationale. [game, set, match]After all calling annual inflation adjustments "cost of living increases" betrays the mendacity behind the rationale. [/game, set, match]
What you're suggesting would require government mandating which fruits and vegetables people by, which car they drive, where they live, etc.
What you're suggesting would require government mandating which fruits and vegetables people by, which car they drive, where they live, etc.
Nothing could be further from the truth.
What I am suggesting is that the government make an effort to accurately track inflation/dollar devaluation and apply that to COLAs.
But obviously the government is intimidated by accurate tracking and public dissemination of dollar devaluation data.
