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More about CPI and hedonic adjustments
Old 06-06-2005, 03:34 PM   #1
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More about CPI and hedonic adjustments

Consumer costs skyrocket while inflation falls flatBy Patrice Hill

"Consumer prices are higher this year, but some specialists say even the measured rise in inflation does not reflect the rapidly rising costs consumers encounter every day.
. . . "

"Some economists think the price measure is not reflecting everyday realities. They note a disconnect between the government's inflation reports and what consumers say they are experiencing.
. . ."

"As the debate over inflation rages, another important aspect of the Consumer Price Index has come under fire: a system of "quality adjustments" the department introduced nine years ago to take into account improvements in the performance of products that may justify price increases.
Under the department's new procedures, the shelf price of a computer may be the same this year as last year, for example, but the department's index would show a drop in price if the computer's processing speed or other capabilities have been upgraded.
Thus, according to department computations, computer prices have plunged 70 percent over the past five years and television prices have dived 46 percent -- all largely because of improvements in performance rather than actual drops in their retail prices.
The American Institute for Economic Research -- a Massachusetts Institute of Technology think tank which has been chronicling inflation trends since the 1930s -- contends that inflation has become seriously understated because of the department's quality adjustments.
In an example of a quality adjustment noted by the institute, the sticker price of a new car may go up by $200, but the department records no increase if it was due to $200 worth of air-bag improvements.
. . ."


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Re: More about CPI and hedonic adjustments
Old 06-06-2005, 03:57 PM   #2
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Re: More about CPI and hedonic adjustments

An example of one flaw in their logic is that although a computer's capabilities have improved, so have the tasks which it is expected to perform.

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Re: More about CPI and hedonic adjustments
Old 06-06-2005, 06:56 PM   #3
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Re: More about CPI and hedonic adjustments

And you STILL have to pay for it, which is what I thought inflation was supposed to measure...rising prices of consumer goods.
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
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