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Old 03-14-2012, 03:50 PM   #21
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I remember the charts and some intense discussions. Bill Gross dedicated his monthly investment newsletter to inflation measurement a number of times. Along with others, he was very critical of hedonic adjustments and the implied rent formula.
I think the hedonic adjustments get a bad wrap because they sound like something someone who's trying to fudge the number would do. But the adjustments take into account both increases and decreases in quality - for every T.V. that goes HD, there is an oak table that is now partical board. Besides, the impact on all of these adjustments isn't what the critics contend.

According the BLS
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BLS has used hedonic models in the CPI shelter and apparel components for roughly two decades, and on average hedonic adjustments usually increase the rate of change of those indexes. Since 1998, hedonic models have been introduced in several other components, mostly consumer durables such as personal computers and televisions, but these newer areas have a combined weight of only about one percent in the CPI. A recent article by BLS economists estimated that the hedonic models currently used in the CPI outside of the shelter and apparel areas have increased the annual rate of change of the All Items CPI, but by only about 0.005 percent per year.
So the impact of hedonic adjustment actually has increased reported CPI inflation, but only 0.005 percent per year.

Much ado over nothing, really.
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Old 03-14-2012, 03:56 PM   #22
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Mods: when this thread plays out, be sure to add it to the FAQs - along with the other 39 threads on this subject.

(FAQ archive) The Consumer Price Index (CPI) and its validity... or not.
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Old 03-14-2012, 04:11 PM   #23
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I would guess there is a decile at the bottom who receive government handouts that are so extensive as to mostly shield them from inflation. I'm thinking the folks getting WIC, food stamps, TANF (or whatever they call it now), medicaid (or unpaid emergency room visits), public housing/sec 8, utility supplements, using heavily subsidized public transit, etc.
I suspect folks down here are truly squeezed and gov't assistance isn't nearly as generous as many believe, but we're both guessing.
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Old 03-14-2012, 04:14 PM   #24
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I think the hedonic adjustments get a bad wrap because they sound like something someone who's trying to fudge the number would do. But the adjustments take into account both increases and decreases in quality - for every T.V. that goes HD, there is an oak table that is now partical board. Besides, the impact on all of these adjustments isn't what the critics contend.

According the BLS


So the impact of hedonic adjustment actually has increased reported CPI inflation, but only 0.005 percent per year.

Much ado over nothing, really.
Unless you have to pay for hedonic adjustments with a declining real wage or non-Cola'd pension. Then it is nothing but much ado, really.
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Old 03-14-2012, 04:16 PM   #25
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Mods: when this thread plays out, be sure to add it to the FAQs - along with the other 39 threads on this subject.

(FAQ archive) The Consumer Price Index (CPI) and its validity... or not.
Good idea. I added it, in case we forget.
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Old 03-14-2012, 04:20 PM   #26
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Mods: when this thread plays out, be sure to add it to the FAQs - along with the other 39 threads on this subject.

(FAQ archive) The Consumer Price Index (CPI) and its validity... or not.
This time it's different?
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Old 03-14-2012, 04:24 PM   #27
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This time it's different?
Don't know about that, but that post containing the CPI threads is inflating very quickly.
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Old 03-14-2012, 04:27 PM   #28
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Don't know about that, but that post containing the CPI threads is inflating very quickly.
Had we hedonically adjusted it for quality it would disappear altogether.
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Old 03-14-2012, 04:30 PM   #29
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Had we hedonically adjusted it for quality it would disappear altogether.
Never mind the quality, feel the width...
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