Do you think coal and lard should be included, like they were pre-1956? Or do you think the CPI should try to model reality?
> CPI is structurally biased to report lower inflation.
Quite the opposite. In the 1990s the Boskin Commission found that CPI was too high:
> The Boskin Commission, formally called the "Advisory Commission to Study the Consumer Price Index", was appointed by the United States Senate in 1995 to study possible bias in the computation of the Consumer Price Index (CPI), which is used to measure inflation in the United States. Its final report, titled "Toward A More Accurate Measure Of The Cost Of Living" and issued on December 4, 1996, concluded that the CPI overstated inflation by about 1.1 percentage points per year in 1996 and about 1.3 percentage points prior to 1996.
I don't think the calculation/definition makes sense to capture inflation though. The idea seems to be to measure the quality-of-life-impacting inflation and not just inflation. Which can make sense.
So if people can elude inflation of certain goods by buying differents and if that happens, inflation exists but doesn't actually impact quality of life. That seems to be the theory and foundation of the calculation logic.
The problem is that it's not necessarily true. If people completely stop buying product A (which's price increased 100x) and switch to product B (with the same price as before) then by the above calculation there is no inflation at all. However it could be that B is actually an inferior solution to their problem and while it works, they would prefer A over B when they cost the same.
So for the above calculation to be meaningful, the loss of quality-of-life would have to be measured in the case where one product is replaced by another one. And that is of course extremely difficult to do.
Therefore I would say that the above calcuation generally underestimates inflation.
It would probably be more honest to project inflation by defining a static consumer's basket and following it's price into the future. When done so, it will overestimate inflation the more time passes. So it can be combined with the method above. And the real inflation is somewhere in between.
throw0101c|2 years ago
Yes? Of course? Up here in Canada, the CPI is adjusted from spending surveys:
* https://www.statcan.gc.ca/en/survey/household/3508
When people change their habits in life the CPI is changed to reflect what that life costs. You can see the list of changes going back to 1913:
* https://www.statcan.gc.ca/en/statistical-programs/document/2...
Do you think coal and lard should be included, like they were pre-1956? Or do you think the CPI should try to model reality?
> CPI is structurally biased to report lower inflation.
Quite the opposite. In the 1990s the Boskin Commission found that CPI was too high:
> The Boskin Commission, formally called the "Advisory Commission to Study the Consumer Price Index", was appointed by the United States Senate in 1995 to study possible bias in the computation of the Consumer Price Index (CPI), which is used to measure inflation in the United States. Its final report, titled "Toward A More Accurate Measure Of The Cost Of Living" and issued on December 4, 1996, concluded that the CPI overstated inflation by about 1.1 percentage points per year in 1996 and about 1.3 percentage points prior to 1996.
* https://en.wikipedia.org/wiki/Boskin_Commission
* https://www.ssa.gov/history/reports/boskinrpt.html
* https://www.stlouisfed.org/publications/regional-economist/j...
valenterry|2 years ago
So if people can elude inflation of certain goods by buying differents and if that happens, inflation exists but doesn't actually impact quality of life. That seems to be the theory and foundation of the calculation logic.
The problem is that it's not necessarily true. If people completely stop buying product A (which's price increased 100x) and switch to product B (with the same price as before) then by the above calculation there is no inflation at all. However it could be that B is actually an inferior solution to their problem and while it works, they would prefer A over B when they cost the same.
So for the above calculation to be meaningful, the loss of quality-of-life would have to be measured in the case where one product is replaced by another one. And that is of course extremely difficult to do.
Therefore I would say that the above calcuation generally underestimates inflation.
It would probably be more honest to project inflation by defining a static consumer's basket and following it's price into the future. When done so, it will overestimate inflation the more time passes. So it can be combined with the method above. And the real inflation is somewhere in between.