CPI ... Your Confidence Level in this Statistic?

[cute fuzzy bunny]

If the adjustment is so small, then why do it?

Why does it need to be made so complicated that an intelligent person has to read a 3-5 page paper to understand how somethings cost is measured?

[d]

Originally Posted by sgeeeee

A couple of important facts emerge from this actual data collection and research process

do you really want to introduce facts into this discussion?

[sgeeeee]

Originally Posted by Cute Fuzzy Bunny

If the adjustment is so small, then why do it?

Why does it need to be made so complicated that an intelligent person has to read a 3-5 page paper to understand how somethings cost is measured?

The main reason is because it's not as simple as many people think it is. It is complicated to try to quantify inflation as it applies to life on average in this country. Some people say things like, "Why don't they simply buy the same basket of goods every time?" That sounds so simple, but it won't work for a number of important reasons. The products typically purchased by a family evolve and change dramatically over fairly short periods of time. Purchased items change and the features and quality of items change.

Although the impact of each adjustment is minor, the attempt is to make the metric as accurate and useful as possible. It the USBLS can conceive of an aspect of inflation that may need to be captured, they conduct research and analysis to figure out if it can be quantifed with enough accuacy to help or hurt the value. Of course they don't know the impact is going to be small until they've done months or years of statistical research and come up with the answer.

Anyone who thinks this is easy should try to figure out how to quantify their own personal inflation rate with any accuracy. Imagine that you have a complete and thorough list of items you purchased from 1990 to 2005. How would you quantify your inflation rate? Many of the things you bought in 2005 didn't even exist in 1990 and vice versa. Because your lifestyle is likely to have shifted over that period, you also probably changed the kinds of food you eat, the clothes you wear, your vacation and dining habits, etc. The cell phone or computer you bought in 1990 bears no resemblance to the one you bought in 2005. The newer one costs less, does much more, and is more reliable. Then there are all the items that you may have had to purchase only once or twice during the entire 15 year period -- major appliances, furniture, cars, . . . How long will you keep the washing machine you purchased? In many cases it may be for over 20 years. The lifetime of the items contributes significantly to the inflation calculation. While it is pretty easy to sum up the total expenses by year and find out whether you spent more or less in 1990 than in 1991 or 2005, those numbers fail completely to tell you anything about personal inflation.

Now multiply those problems by everyone in America.

[haha]

Originally Posted by TromboneAl

Are there any other government or non-gov inflation indices published?

http://www.gillespieresearch.com/

[mathjak107]

you cant even say electronics are cheaper today either...as an example my sony xbr set was 750.00 about 15 years ago..if you know tv's the xbr line represents the latest and greatest technology of that day..while yes today you can buy an equivelent performing to my 15 year old set for 250 bucks the equivelent xbr representing todays latest and greatest technology is 2200.00........you cant compare just equal performance without comparing it to where it is in the "quality performance scale of that time period...........my first cd player was 1,000 dollars but it was state of the art new technology best of breed in those days...while a cd player today can cost 50 bucks the best of breed is 2500-10,000 bucks

[Craig]

The Gillespie data appears to be only available to subscribers.

I appreciate the info ... sgeeee, thanks for passing on your experience in more closely reviewing the BLS process.

[justin]

Originally Posted by mathjak107

you cant even say electronics are cheaper today either...as an example my sony xbr set was 750.00 about 15 years ago..if you know tv's the xbr line represents the latest and greatest technology of that day..while yes today you can buy an equivelent performing to my 15 year old set for 250 bucks the equivelent xbr representing todays latest and greatest technology is 2200.00........you cant compare just equal performance without comparing it to where it is in the "quality performance scale of that time period...........my first cd player was 1,000 dollars but it was state of the art new technology best of breed in those days...while a cd player today can cost 50 bucks the best of breed is 2500-10,000 bucks

I see the same problem with the cutting edge of flight.

60 years ago tickets on a jet would cost $100. Now, flights on the equivalent cutting edge technology (space flight) cost $20 million. Clearly evidence of hyperinflation.

Do you ever feel like you've got a solution, but you have to go out and search hard to find the problem?

[mathjak107]

Originally Posted by justin

Well, assuming you were a kid 50 years ago, that would mean a 4.7% inflation rate.

Did the pizza get bigger, better, tastier?* Does it have more expensive ingredients now?*

I'm thinking back to what a combination dinner at your generic mexican restaurant cost when I was a kid (10-15 years ago).* Around $5-6 bucks.* Now it is $6-6.50 at the same types of places.* Does this suggest astronomically low inflation?* I have successfully refuted your pizza example by introducing this new proof.

I would love to be a little kid now.* With walmart and the dollar store selling all those awesome toys (cheap plastic crap to us adults), it would be amazing!* The stuff they sell now is twice as nice, there's twice as much of it all at half the cost.*

[mathjak107]

actually pizza was 15 cents a slice about 40 years ago which brings the inflation rate to about 4.5%

[mathjak107]

by the way check out the figures the cpi allows for health care costs and education...they are laughable..

[mathjak107]

Originally Posted by justin

thinking back to what a combination dinner at your generic mexican restaurant cost when I was a kid (10-15 years ago).* Around $5-6 bucks.* Now it is $6-6.50 at the same types of places.* Does this suggest astronomically low inflation?* I have successfully refuted your pizza example by introducing this new proof.

I would love to be a little kid now.* With walmart and the dollar store selling all those awesome toys (cheap plastic crap to us adults), it would be amazing!* The stuff they sell now is twice as nice, there's twice as much of it all at half the cost.*

cheap crap has always been cheap crap and walmart is cheap crap ,at least lets compare walmart to johns bargain stores of yesterday ...remember johns bargain stores...shirts for a buck..the usual quality well made stuff always cost way more...the cpi is about always excepting less than and downgrading what we had because functionally they found a cheaper equal...while a ford taurus may be nicer and even out perform a caddy of 7 or 8 years ago a caddy owner dosnt want to trade for a ford taurus in his next car...

[mathjak107]

lets start an annuties topic as i have mixed feelings about immeadiate annuities which we can toss around....ill start one in a few

[mathjak107]

oops wrong topic accidentily..first day with the new mouse

[cute fuzzy bunny]

Originally Posted by sgeeeee

The main reason is because it's not as simple as many people think it is.
...
Now multiply those problems by everyone in America.

You just described why its an implausible number to measure. And if you go back to my first post on this, i'm not interested in exposing a government conspiracy, simply pointing out that the number does not reflect inflation for a lot of people, and i'm betting for most ER's.

In a prairie dog moment, lets remember that this stat is supposed to measure changes in the costs of living, and 80 million peoples income is dependent on it. The guys who measure it are part of the same club whose success is measured by keeping the number low, and who have to open their wallets and pay the difference. Not a formula for accuracy.

I'm sure its a hard thing to measure. With hard measurements, I've found the right answer is to keep things simple. The current CPI measures are more complicated to understand than the dang tax code.

Tell you what though, I'd be happy to agree on two things. One is that CPI <> Inflation, and the other is that buying a CPI indexed asset does not produce a "real" return. Those two misconceptions could be pretty painful for an investor to misunderstand. It was one of my main disagreements with the "wonder twins" when they said you could buy TIPS and have an "inflation proof" 30 year investment plan.

What you had was a 30 year "CPI proof" investment plan. In some areas, lifestyles and spending patterns, that might be better than an inflation proof plan. I'm betting that for most ER's, its not.

Good data, and some interesting articles.

http://jimrogers.com/content/stories..._Us_Again.html
http://www.mises.org/freemarket_detail.asp?control=368
http://en.wikipedia.org/wiki/Consumer_price_index

[cute fuzzy bunny]

AH HAH!

I had seen this web site some time ago, and have been looking for it ever since.

Check this out.

http://www.gold-eagle.com/editorials...los090904.html

[d]

Originally Posted by Cute Fuzzy Bunny

...lets remember that this stat is supposed to measure changes in the costs of living...

This is not true.* It is designed to measure price changes.* "Cost of living" obviously includes this, but also includes many other things. Herein, I'd guess, lies much of the expressed dissatisfaction with CPI.

[cute fuzzy bunny]

How a measure is employed becomes the purpose of the measure.

How is the CPI measure most employed?

[d]

should something be misused, does that mean it is somehow flawed?

[mathjak107]

yep......

[d]

poppycock