Chicago Man Takes Exception To the Official Gvmt CPI

[barbarus]

And so do I. One has to be aware of the natural tendency to only focus on rising prices while discounting those goods&services that are getting cheaper.
Never the less, it seems that the overall cost of living for the average person is substantially above the official figure.

Agree or disagree? Think carefully and dispassionately before responding please.

Bloomberg.com: News

[twaddle]

And why does it matter? If you're relying on social security checks, I guess it matters.

The market looks at the CPI as a macroeconomic indicator. The absolute value doesn't matter as much as the direction. If inflation is really much higher than the CPI, then we're all hosed. Our investments will fail to provide enough income to keep up with our expenses. But what can you do about it?

[samclem]

Quote:

Originally Posted by twaddle And why does it matter? If you're relying on social security checks, I guess it matters.

Or TIPS. Or I-Bonds. Or a COLAd pension. Or if you buy products made by workers with labor agreements tied to the government CPI.

As it happens, the govt has lots of incentives to understate inflation, and none whatsoever to call it fairly.

Where's CFB when we need him? Hey, he wouldn't have traveled to Chicago by any chance, would he?

[twaddle]

Quote:

Originally Posted by samclem Or TIPS. Or I-Bonds. Or a COLAd pension. Or if you buy products made by workers with labor agreements tied to the government CPI. As it happens, the govt has lots of incentives to understate inflation, and none whatsoever to call it fairly. Where's CFB when we need him? Hey, he wouldn't have traveled to Chicago by any chance, would he?

The real yield on TIPS is around 2.5%. The CPI is around 2.5%. So, the TIPS total yield is around 5%. About the same as nominal bonds. Obviously, the market sets the yield on bonds, and apparently the market believes the CPI is pretty close. That's all that matters, right? If the market didn't believe in the CPI, then the "real" inflation rate would be factored into bonds and other investments, wouldn't it?

So, how about an inflation metric that isn't calculated based on the BLS's "basket of goods?" What would that tell us?

How about the GDP deflator?

GDP deflator - Wikipedia, the free encyclopedia



Hmm, looks like the CPI is actually a bit higher than the inflation metric prefered by most economists....

[Texas Proud]

Twaddle...

Would you stop confusing the issue with facts

don't you know our OPINION counts more

[samclem]

Quote:

Originally Posted by twaddle The real yield on TIPS is around 2.5%. The CPI is around 2.5%. So, the TIPS total yield is around 5%. About the same as nominal bonds.

Wow, those bond traders aren't very smart. They could be getting 6% with a government backing at PENFED. Hmmh, just for grins . . . 6% minus 2.5% real yield would lead to an expected inflation amount of 3.5%, which is quite a bit higher than 2.5%.

But, I agree, that's not the standard way of clocking these things.

[Darryl]

The taxing authorities have never felt the assessed value of my home decreased. I did win an appeal once a couple houses ago. we closed in October and in February I received my assessment I believe it was 25-35% over what I paid (sorry been about 15 yrs) I called to schedule my appeal and I tell the guy who answered the phone I want to schedule an appeal because my home is not worth anywhere near where they have it listed. He says well what are you basing your appeal on and I told him that I'm basing it on what I paid four months ago. He says oh, how much was that? I tell him and he said that was my new number I wouldn't need to come in.
Home maintenance okay, energy definitely, medical ouch, college in 6 yrs it starts ugh yeah it all feels like more than 2% to me.

[Darryl]

I think I saw a CFB post yesterday. He should be along shortly.

[FinanceGeek]

Due to the large number of fiscal tie-ins to CPI (SS, TIPS, other COLAs), the government has all kinds of vested interest to understate the true rate of inflation.