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CPI vs. Items purchased
Old 11-26-2006, 01:52 PM   #1
 
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CPI vs. Items purchased

I came across this graph for the past 20 years that compares CPI vs. the Items by category. I don't understand why they have a separate category for Energy and then Fuels and Electricity. Maybe someone can explain this.

But it does seem to show that if you are healthy and not paying college tuition that the bulk of your purchases are actually getting cheaper over time (In relation to CPI) IOW - An investment of TIPS has real growth of purchasing power just with the inflation adjustment alone. Not the typical reaction to most of the folks here. I long suspected this was happening. It also shows the importance of staying healthy has on your budget.

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Re: CPI vs. Items purchased
Old 11-26-2006, 02:02 PM   #2
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Re: CPI vs. Items purchased

housing is way off too and thats the bulk of our expenses , including real estate taxes in most places. everything is based on rental prices not ownership

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Re: CPI vs. Items purchased
Old 11-26-2006, 02:06 PM   #3
 
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Re: CPI vs. Items purchased

Quote:
Originally Posted by mathjak107
housing is way off too and thats the bulk of our expenses , including real estate taxes in most places.

housing is only based on rentals and certainly no rentals in areas near me.
I'm not sure what you mean by 'Housing is way off too'

- But, I live in a $575K house and my property taxes have actually decreased by 14% over the last 9 years. So it has gotten cheaper by a large margin for myself. My house has been paid for for 4 years or so.
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Re: CPI vs. Items purchased
Old 11-26-2006, 02:09 PM   #4
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Re: CPI vs. Items purchased

That's an interesting table. A glaring omission is property taxes, which, for me at least, have grown considerably faster than inflation. Also, even if you manage to stay healthy; if you are paying for health insurance, it has grown as fast as the medical items shown in the table.
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Re: CPI vs. Items purchased
Old 11-26-2006, 03:46 PM   #5
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Re: CPI vs. Items purchased

Quote:
Originally Posted by Cut-Throat
I'm not sure what you mean by 'Housing is way off too'

- But, I live in a $575K house and my property taxes have actually decreased by 14% over the last 9 years. So it has gotten cheaper by a large margin for myself. My house has been paid for for 4 years or so.
we went from 160,000 20 yrs ago to 475,000 today. taxes 800 to 3600 in new york city.

nassau and suffolk county probly went from 800-900 to 9-12,000

health insurance is off the chart , 20 years ago we paid 100 a month . today its 700 a montth


im not to comfortable with that new car amount either. certainly no new cars i ever bought are only up that little and i get a new car every 3 years
sometimes even the same model.

not counting cheap shoddy apparel from china is anyone paying less than double for a pair of jeans?
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Re: CPI vs. Items purchased
Old 11-26-2006, 03:56 PM   #6
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Re: CPI vs. Items purchased

and dont even get me started on cheap shoddy manufactured goods from china. we are currently trying to have some water pumps manufactured over there that will be brand labeled for us. oooooh my god what crap we have gotten so far, even from supposed state of the art factories. but thats another topic.
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Re: CPI vs. Items purchased
Old 11-26-2006, 04:02 PM   #7
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Re: CPI vs. Items purchased

Quote:
Originally Posted by mathjak107
...
im not to comfortable with that new car amount either. certainly no new cars i ever bought are only up that little and i get a new car every 3 years
sometimes even the same model.
...
The spouse bought a new car last summer to replace her 200K mile Camry. The new car cost less than the Camry cost her 12 years ago.
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Re: CPI vs. Items purchased
Old 11-26-2006, 04:07 PM   #8
 
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Re: CPI vs. Items purchased

Quote:
Originally Posted by mathjak107
im not to comfortable with that new car amount either. certainly no new cars i ever bought are only up that little and i get a new car every 3 years
sometimes even the same model.
mathjak,

you happen to live in a high inflation part of the U.S. - Not everyone lives in New York. I'm just giving you the statistics.It Doesn't mean it's for everywhere in the U.S.

Also. I bought a Brand New Honda Accord in 1987 - The Sticker was close to $16,000 - I think you can get an equivalent Accord today for around $20K- That would be an increase of about what is stated in the chart. These are facts, and they happen to line up with my experience.

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Re: CPI vs. Items purchased
Old 11-26-2006, 04:36 PM   #9
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Re: CPI vs. Items purchased

Quote:
Originally Posted by Cut-Throat
I agree with everything presented in this chart, possibly with the exception to "Eggs". Who cares about eggs? :

Thanks CT. You don't happen to have a more detailed chart containing other items? Meat, Fish, Consumer Electronics, Restaurant meals, Car repairs, etc...? It would be great to get the complete picture.
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Re: CPI vs. Items purchased
Old 11-26-2006, 04:56 PM   #10
 
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Re: CPI vs. Items purchased

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I agree with everything presented in this chart, possibly with the exception to "Eggs". Who cares about eggs? :

Thanks CT. You don't happen to have a more detailed chart containing other items? Meat, Fish, Consumer Electronics, Restaurant meals, Car repairs, etc...? It would be great to get the complete picture.
No, I don't have another chart, but it would be good to see one. I think you can measure some things on a 1 to 1 basis like eggs - But have a hard time when it comes to TVs, since technology changes.

Also heatlh care costs have gone up primarily to the 'heroic' measures that are taken during end of life. But I wonder If you just measured a Flu Shot 20 years ago with a Flu shot today? How about a appendectomy today vs. 1 20 years ago?
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Re: CPI vs. Items purchased
Old 11-26-2006, 05:09 PM   #11
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Re: CPI vs. Items purchased

like we said in earlier discussions its a very personal thing. how inflation takes its toll is unique to the goods , products , services ,location and how accomodating we are to switching brands, products or doing cheaper substitutions..... generally the more expensive higher end products are effected more.
heck if i didnt need health insurance, pay real estate taxes, drive my car,heat my house or put 2 kids thru college and graduate school i may not have even noticed barley a change
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Re: CPI vs. Items purchased
Old 11-26-2006, 07:02 PM   #12
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Re: CPI vs. Items purchased

Here is a link to an old post that attempted to show how CPI tracked versus historic prices listed in the New Jersey Daily Record. The results pretty much validated CPI as a general measure of inflation. Some items inflated more than CPI, others less, while the rest where spot on.
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Re: CPI vs. Items purchased
Old 11-26-2006, 09:11 PM   #13
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Re: CPI vs. Items purchased

Interesting chart.

There's really been a flip-flop in the costs of goods / services over 20 years.

Goods down: cheap Asian labor and technology has given us tons of "cheap stuff".

Services up: labor is much more expensive - which is why education and medical services have inflated so much. This is why we don't "fix" anything - we throw it out and buy another.

It will be interesting to see where things go from here - I've seen a lot of predictions:
- Dollar depreciates, imported goods get a lot more expensive
- Seemingly endless pool of low wage countries, and robots ensure cheap goods
- Wages stagnate/fall because no more good jobs, services pricing falls
- Baby boomers retire, shortage of labor - services go through the roof
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Re: CPI vs. Items purchased
Old 11-26-2006, 11:02 PM   #14
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Re: CPI vs. Items purchased

Quote:
Originally Posted by Cut-Throat
I came across this graph for the past 20 years that compares CPI vs. the Items by category. I don't understand why they have a separate category for Energy and then Fuels and Electricity. Maybe someone can explain this.


1. On Fuel/Energy - I don't know the definitions they use, but one is likely for things like home heating oil/natural gas sold to consumers, one might be tracking unleaded gas/diesel, and one might be tracking spot prices (or something to that effect), since the spot price is related to, but not directly correlated to, what you pay your local utility (due to things like transmission/installation costs, upgrades, etc. that the utility charges you). Things like changes in fuel additives (remember MBTE, ethanol, and any other crazy additives your local refiner has to use?) can also impact some energy categories, which wouldn't directly be picked up by simply tracking Sweet Texas Crude.

2. Healthcare - while we may not realize it (and while most people may not actually directly benefit from it that often), healthcare has improved over the last 20 years. So while you may pay 700% more in monthly premiums vs 20 years ago, that monthly premium will cover you with more advanced medical care and drugs vs what was available 20 years ago. If we all had MRIs every day or if we all used AIDs drugs every day or somehow directly used healthcare (the more advanced stuff) on a daily/annual basis, we'd be more aware of the advances. But, as most of us are only exposed to Tylenol and an occasional visit to the doctor (wearing the same white lab coat, using the same stethoscope, weighing us on the same old-fashioned scale ), we don't see the big increase in the 'standard of living' of healthcare (in some areas, not all), which would be opposite of the China-effect of a lower standard with disposable ________. Another impact (which I have exposure to from my career) is the sometimes insane remodeling/changes that hospitals (especially city) go through due to lack of space. You'd be amazed at how some general contractor superintendents literally stay at the same hospital for a decade, and end up remodeling the EXACT SAME FLOOR/SPACE two...three...sometimes even four times...within a 10 year span! One more component of the excessive healthcare cost upward spiral.

3. Housing - the Fed's response to your observation on property tax rates is simply this: everything that the renter pays will track what a homeowner pays, because whoever does own the home/apartment building that is rented out will eventually pass on the costs to the renter - whether it's higher real estate taxes, higher fuel costs, higher building costs, etc. So, if property taxes double overnight, eventually (in the long run) the monthly rents that the renter pays will rise proportionately, so there will be parity in costs to a homeowner.

HOWEVER - what the Fed's index fails to address is:
1) Change in tax laws - if depreciation changes or some other rules change on land ownership, it can have a definite valuation/effect on rents (if tax laws become more favorable, land lords don't need to raise rents as much due to higher net income from better tax legislation).

2) Changes in cap rates - as we've seen, cap rates on investment property are pretty low nationwide - a combination of rising property values, and stagnant rents. This results in landlords not needing to raise rents (as much), since if they were making 12% gross returns before when risk-free rate was at 6%, they don't need to make 12% when the risk-free rate is at 2% or 4% (combined with point #3). This probably won't have too much impact long-run, but we'll see how long the current cap rate trend lasts, and if it's a wholesale fundamental market shift (in conjunction with long-term interest rates) or just movement along the cycle.

3) Long-run increase in home ownership - there appears to be a trend of increasing home ownership (according to some gov't figures). This results in long-run decreasing rental demands (obviously, due to population increases, there will be a net increase in rental demand, but as a % of households, renters appear to be declining). Due to carrying costs of landlords, they might offer incentives or hold rent increases lower to increase occupancy rates, rather than continuously increase rents to match inflation and have a higher vacancy. This obviously can't be compared to a homeowner, who can't say "I want to decrease my costs, so I'll only heat/live in/pay taxes on 75% of my house to change my 'occupancy rate' and lower costs" (opposite of landlord dropping rents to change occupancy rate). True, there are some things you can do like close off the heating/cooling vents in some rooms, but it's not as easy as a landlord changing rents to change occupancy.


What would really be interesting (albeit highly complex) is to create "government spending" and "government legislation" indexes to track how changes in government coverages (e.g. changing medicare coverage, increasing public school district property tax rates) and how changes in government legislation (different fuel additives, allowing drug companies to market/advertise their drugs directly to consumers, increasing marketing costs - and iindirectly increasing drug costs) have impacted the price index, and what the price index would be if the exact same thing were produced today as it was X years ago. I'd imagine those indexes would be fairly higher than 1.00. Sure, there are some beneficial things like much lower pollution...but plenty of pork projects would jack it up as well.

One other index that should be tracked - lawsuit awards. I'm really curious what an 'innocent victim fatality' is worth in 1960 vs today? How about hurting your back and collecting a life settlement? People complain about CEOs making 200x what the lower wage earner makes....how about comparing what juries award victims/victims' families today vs 1960? And how about those lawyers who take 1/3?
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Re: CPI vs. Items purchased
Old 11-27-2006, 02:52 AM   #15
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Re: CPI vs. Items purchased

it also does not take into consideration all the things we arent getting while prices stay the same. smaller packages of goods, smaller candy etc. less hershey kisses to the bag, even bubble gum shrank.


lots of local gov't jobs and benefits done away with along with certain services killed off yet taxes are the same or higher.

this is all invisible inflation

as far as rents catching up to ownership:
i dont think there are many markets in the country where even after 20 years rents kept pace with real estate taxes or cost of ownership..
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Re: CPI vs. Items purchased
Old 11-27-2006, 08:32 AM   #16
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Re: CPI vs. Items purchased

I've noticed this with cars - a 2000 honda civic LX versus a 2005 honda civic LX - I believe the inflation rate for this product was around 1.x% versus a CPI of approximately double that. And the car got better in 5 years - the options available in an LX trim of the car today were standard in the more expensive EX trim in 2000. Electronics and apparel are the same way.

I wonder if this makes us ER folks overbudget for future expenses. It seems like many folks here, when assembling an ER budget, will use an inflation number much higher than CPI for health care costs and college costs. And then they will use the CPI for all other expenses. I know I have done this in my personal budgeting. I think I used CPI + 2% for healthcare and college expenses, and CPI for all other expenses. In reality, it may end up being CPI - 1% for all other expenses.
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Re: CPI vs. Items purchased
Old 11-27-2006, 08:40 AM   #17
 
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Re: CPI vs. Items purchased

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Originally Posted by mathjak107
it also does not take into consideration all the things we arent getting while prices stay the same. smaller packages of goods, smaller candy etc. less hershey kisses to the bag, even bubble gum shrank.
Yes, I think it does. The prices on these are usually measured on a per ounce basis.
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Re: CPI vs. Items purchased
Old 11-27-2006, 09:18 AM   #18
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Re: CPI vs. Items purchased

Quote:
Originally Posted by Cut-Throat
- But, I live in a $575K house and my property taxes have actually decreased by 14% over the last 9 years.
Was this just for you, or was it statewide as the result of raising other taxes? I don't think I know anyone who has had their property taxes go down over such a long period of time, unless they fought their assessment.
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Re: CPI vs. Items purchased
Old 11-27-2006, 09:42 AM   #19
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Re: CPI vs. Items purchased

Cut-Throat, could you post the link to the article or whatever includes the chart? I think this needs to be passed around a bit.
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Re: CPI vs. Items purchased
Old 11-27-2006, 09:45 AM   #20
 
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Re: CPI vs. Items purchased

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Was this just for you, or was it statewide as the result of raising other taxes? I don't think I know anyone who has had their property taxes go down over such a long period of time, unless they fought their assessment.
A couple of things happened here. When I moved into my home the taxes were about $4900 per year in 1998. The state of Minnesota had a large surplus of $$ in the late 90's. Jessie the Body Ventura who was our Gov. at that time lobbied for property tax relief Statewide and my Prop. taxes dropped by about $1,000 from 2001-2002. Since then they have increased by a small percentage.

I also live in a mature suburb fairly close to Downtown Minneapolis (about 10 miles). All of our Schools are built and infrastructure also. Sewers, roads etc. - A lot of the property taxes go to these local projects. Some people in Minnesota in expanding suburbs have not seen the reductions that I have. That is why is it very difficult to start comparing property taxes from one locale to another. But it is probably included the 'housing' category in the original chart.

My property taxes for next year (2007) are $4538. A 1% increase over 2006. So, it's not just me, but It is my whole district as well as many others in the Minneapolis area. However there are high growth suburbs in this area that have had their taxes increase by a large amount. Depends on where you live.
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