I've never bought into it either, and I even see it here among people who should know better. As part of my job, I review CPI monthly in detail. Despite posting the actual documents at work several times, the most unforgiveable claim, and I hear it among people I work with all the time is (from the OP link):Core CPI vs CPI-X. I don't buy into the big brother tricking us theory.
Anyone can see the detail anytime right here http://www.bls.gov/news.release/pdf/cpi.pdf. The detail including food, home energy (utilities) and transportation energy (gas) is clearly shown in the detail beginning on page 9. And quoting the linked document (clearly shown in the detail calculation):The consumer price index, which is used to measure inflation, doesn’t include food and energy prices. If you like to eat, drive, or heat your home, tough luck. THIS IS PLAIN FALSE.
The 12-month increases of major indexes continue to climb. The all items index rose 3.2 percent for the 12 months ending April 2011, the highest figure since October 2008. The energy index has now risen 19.0 percent over the last 12 months, with the gasoline index up 33.1 percent. The food index has risen 3.2 percent while the index for all items less food and energy has increased 1.3 percent; both figures represent increases over recent months.
I think the CPI's only relevance to the individual is the amount by which a COLA pension or a Social Security check is raised.Where, in the indexes, are they tracking the costs of getting anyone to do anything - fix your plumbing or your car, mow your lawn, paint your house?
is mistaken, because:– The CPI assumes you will be just as happy substituting cheaper goods for less expensive ones if prices rise. Everybody uses exactly the same example for this: “If the price of steak goes up, the government assumes you’ll buy more hamburger, so there’s no inflation.”
Well, I have some questions about this.As for steak and hamburger, as the BLS puts it, “Hamburger and steak are in different CPI item categories, so no substitution between them is built into the CPI-U or CPI-W.” So quit saying that. Please. Have a burger.
The lower CPI is the happier I am because my pension is not COLA'd! Fortunately I started collecting it so young that I will take my fair share anyway.I think the CPI's only relevance to the individual is the amount by which a COLA pension or a Social Security check is raised.
Everything else is an individual situation that has little to do with the big picture.
What is substitution and substitution bias? And does the C-CPI-U eliminate it?
Traditionally, the CPI was considered an upper bound on a cost-of-living index in that the CPI did not reflect the changes in consumption patterns that consumers make in response to changes in relative prices.
Since January 1999, a geometric mean formula has been used to calculate most basic indexes within the CPI; this formula allows for a modest amount of substitution within item categories as relative price changes.
The geometric mean formula, though, does not account for consumer substitution taking place between CPI item categories. For example, pork and beef are two separate CPI item categories. If the price of pork increases while the price of beef does not, consumers might shift away from pork to beef. The C-CPI-U is designed to account for this type of consumer substitution between CPI item categories. In this example, the C-CPI-U would rise, but not by as much as an index that was based on fixed purchase patterns.
With the geometric mean formula in place to account for consumer substitution within item categories, and the C-CPI-U designed to account for consumer substitution between item categories, any remaining substitution bias would be quite small.
According to the BLS site, "Each month, BLS data collectors called economic assistants visit or call thousands of retail stores, service establishments, rental units, and doctors' offices, all over the United States, to obtain information on the prices of the thousands of items used to track and measure price changes in the CPI. These economic assistants record the prices of about 80,000 items each month, representing a scientifically selected sample of the prices paid by consumers for goods and services (<-Amethyst) purchased."1. Is it true that steak and hamburger are in different item categories? In the BLS document that midpack referred us to, I see only expenditure categories, and just one category for "meats, poultry, fish, and eggs".
If there is a better metric for inflation than the various CPI measures, I don't know what it is. We can't expect metrics personally tailored to our ever-changing consumption habits...
They understand that pissing in the well does not make for a healthy village.
After my initial "Woo-hoo!" at my first COLA, I realized that I really didn't want to live in an economy that requires COLAs.The lower CPI is the happier I am because my pension is not COLA'd! Fortunately I started collecting it so young that I will take my fair share anyway.
Better get those fillings out toot sweet: that is how the gubmint is doing its mind control on you.
Seriously, what everyone seems to forget is that these figures are compiled and sorted out by economists who generally really care about data and rely on it as a matter of course. They understand that pissing in the well does not make for a healthy village.
clifp said:The moment somebody like Google or even Walmart publishes a price index based on an automated data stream, rather than thousands of interviews I'll be much more inclined to believe them.
You may have missed this in the article:The problem is that data collection by virtually all government agencies relies on methods that date back from the 1930, when FDR tasked the government to collect more economic data. In an increasingly online world this is recipe for ending up with some very misleading statistics, i.e. garbage in --> garbage out.
Since 2007, the Billion Prices Project (BPP) at MIT has been collecting price data the same way you and I do it: by going online. This is completely different from the BLS’s method, which is to send people out to stores to pull shirts off the rack and check the pricetag. (Can you even imagine having this job?)
The project monitors over 5 million prices in 70 countries, including the United States. ...
So what’s the verdict? “When you look at our statistics and the statistics of the BLS, we have roughly the same inflation rate,” says Rigobon. “The increase in our index is almost identical to the total increase of the BLS.
Thanks for the reference --- very interesting. Here, specifically, are Williams' remarks on the CPI: Consumer Price Index .You might want to go to shadowstats.com and look at the alternative CPI compiled by John Williams. It is now over 10%.
2soon2tell said:You might want to go to shadowstats.com and look at the alternative CPI compiled by John Williams. It is now over 10%.
2soon2tell
Core CPI vs CPI-X. I don't buy into the big brother tricking us theory.
Economics is not precise... No measure on something that complex is going to be perfect.
Plus, depending on your personal consumption, area of the country and several other factors... it could overstate or understate your situation.
The trickery comes from certain corporations that sell products like food and try to trick consumers by being the first mover on resizing the amount in a package (shrinking the amount). It is a deceptive practice. No way will they convince me that they shaved 1 oz out of the product to make it affordable when the cost difference is $1 or less.
They hope to exploit the short-term confusion where people are not looking closely... this enables them to profit for a while until their competitors catch on and inevitably resize to be competitive.
I've never bought into it either, and I even see it here among people who should know better. As part of my job, I review CPI monthly in detail. Despite posting the actual documents at work several times, the most unforgiveable claim, and I hear it among people I work with all the time is (from the OP link):Anyone can see the detail anytime right here http://www.bls.gov/news.release/pdf/cpi.pdf. The detail including food, home energy (utilities) and transportation energy (gas) is clearly shown in the detail beginning on page 9. And quoting the linked document (clearly shown in the detail calculation):
After my initial "Woo-hoo!" at my first COLA, I realized that I really didn't want to live in an economy that requires COLAs.