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Old 02-01-2016, 10:00 AM   #41
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I checked out the latest CPI-U numbers and was surprised to see food at home is actually down -0.4% for 2015. Food inflation has been a big complaint on this board...
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Old 02-01-2016, 06:59 PM   #42
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I checked out the latest CPI-U numbers and was surprised to see food at home is actually down -0.4% for 2015. Food inflation has been a big complaint on this board...

I think it has moderated a bit recently especially beef. But, CPI-U if I remember correctly ( never count on that) always assumes you will substitute some foods when price is higher on another product. Grocery bill is less than 10% of my monthly income so I shouldn't get too worked up over it anyways.


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Old 02-01-2016, 07:21 PM   #43
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I think it has moderated a bit recently especially beef. But, CPI-U if I remember correctly ( never count on that) always assumes you will substitute some foods when price is higher on another product. Grocery bill is less than 10% of my monthly income so I shouldn't get too worked up over it anyways.


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No, I don't believe CPI-U actually substitutes foods as in substituting something else for beef.
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It does not assume, however, substitution between steak and chicken or between cars and bus fare.
Consumer Price Index data quality: how accurate is the U.S. CPI? : Beyond the Numbers: U.S. Bureau of Labor Statistics
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Another Sign of Global Deflation
Old 02-01-2016, 07:33 PM   #44
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Another Sign of Global Deflation

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No, I don't believe CPI-U actually substitutes foods as in substituting something else for beef.



Consumer Price Index data quality: how accurate is the U.S. CPI? : Beyond the Numbers: U.S. Bureau of Labor Statistics

Thanks, Audrey. Dang almost made it through the day without being wrong on something. That would have been a personal milestone! I hit one of the links from your article and I read that I fell victim to "one of the 4 myths of the CPI." Substitution was one of the four. I wonder where I got that idea from, because I know I wasn't smart enough to just make it up myself.


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Old 02-01-2016, 08:58 PM   #45
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Thanks, Audrey. Dang almost made it through the day without being wrong on something. That would have been a personal milestone! I hit one of the links from your article and I read that I fell victim to "one of the 4 myths of the CPI." Substitution was one of the four. I wonder where I got that idea from, because I know I wasn't smart enough to just make it up myself.
It's a common and persistent myth. Just like the myth that the CPI-U does not include food or energy.
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Old 02-01-2016, 09:05 PM   #46
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Food inflation has been a big complaint on this board...
Only when it goes up. No one notices when it goes down.
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Old 02-01-2016, 09:10 PM   #47
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Thanks, Audrey. Dang almost made it through the day without being wrong on something. That would have been a personal milestone! I hit one of the links from your article and I read that I fell victim to "one of the 4 myths of the CPI." Substitution was one of the four. I wonder where I got that idea from, because I know I wasn't smart enough to just make it up myself.
Yup, the nerds at BLS make a pretty good effort at an impossible job - tracking inflation. They're not perfect, but if you hear someone claiming that the government is making some kind of unreasonable adjustment to CPI, it's usually safe to assume it's not the BLS that is being unreasonable.
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Old 02-01-2016, 09:36 PM   #48
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But, CPI-U if I remember correctly ( never count on that) always assumes you will substitute some foods when price is higher on another product.
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No, I don't believe CPI-U actually substitutes foods as in substituting something else for beef.
I think the "substitution" issue is confusing because while CPI-U doesn't allow broad substitution like chicken for steak, I believe it does allow for some substitution within a specific category. E.g one kind of steak for another cut of steak. (Chained CPI, a different measure, does allow for steak to chicken substitution).

From the BLS link:

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In 1999, BLS changed the way it calculated the CPI for many of the basic indexes, moving from a Laspeyres formula to a geometric means formula. (A basic index is an index for a particular item category and location; these basic indexes are the building blocks that are aggregated into the broader CPI measures, such as the all items index.) This new formula effectively presumes modest consumer substitution within item categories, correcting for what the Boskin Report termed “lower-level substitution bias.” That is, it assumes that consumers will substitute away from one brand or type of item, such as a steak or a car, as that brand or type becomes relatively more expensive compared with other brands or types of that product. It does not assume, however, substitution between steak and chicken or between cars and bus fare.
It's a little confusing to follow, but I believe it's because they switched from an arithmetic mean to a geometric mean. This has the effect of downweighting inflation in higher priced goods (or equivalently substituting more lower priced goods). But they limit the substitution effect to within a specific category (like different types of steak or different types of ice cream). Even more confusing, I just read that they were planning to revert back to the arithmetic mean in some categories (like prescriptions) where they think the substitution effect isn't significant.


I think a huge drawback of the BLS methodology is that it is hard to follow and is not calculated in fashion that most people would compute inflation (although I do buy the arguments that it is a better measure overall).
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Old 02-01-2016, 09:48 PM   #49
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I think the "substitution" issue is confusing because while CPI-U doesn't allow broad substitution like chicken for steak, I believe it does allow for some substitution within a specific category. E.g one kind of steak for another cut of steak. (Chained CPI, a different measure, does allow for steak to chicken substitution).



From the BLS link:







It's a little confusing to follow, but I believe it's because they switched from an arithmetic mean to a geometric mean. This has the effect of downweighting inflation in higher priced goods (or equivalently substituting more lower priced goods). But they limit the substitution effect to within a specific category (like different types of steak or different types of ice cream). Even more confusing, I just read that they were planning to revert back to the arithmetic mean in some categories (like prescriptions) where they think the substitution effect isn't significant.





I think a huge drawback of the BLS methodology is that it is hard to follow and is not calculated in fashion that most people would compute inflation (although I do buy the arguments that it is a better measure overall).

Well at least I wasn't totally making it up. I read a little deeper into a link from Audreys article, that it allows for some small degree of substitution, but specifically said it didn't "substitute hamburger for steak". Some pretty intense formulas beyond my abilities...


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Old 02-01-2016, 10:16 PM   #50
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I would think deflation would benefit those who have cash or long bonds, but not equity investors. I've not done any reading on it, but if I could buy more next year with the money in my matress than I can now, that seems like a good thing. If, instead of the mattess, I'm invested in equities, then I'd expect the market would be down (not a lot of buyers in a down economy), so not a good thing for the equities investor.

But it will never happen. Those that have tons of debit (governments) need to inflate, because thats the only way they'll be able to service the huge debit they have racked-up; they need to pay off that borrowing with cheap dollars. The spread between inflation and the artificially controlled interest rates is a stealth tax on savers that is helping to wear down the mountain of debit. I guess I'm in a bad mood after doing a capital gains calculation with no allowance for inflation... I basically didn't make anything, but still am having to pay tax on the phantom gains.
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Old 02-02-2016, 08:25 AM   #51
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And then you still can't come back for 90 days.
Hmmm. We never filed for resident status in France because we'd fly back home to the US every 4 or 5 weeks, stay for a few days and then fly back.

Essentially we were tourists/"travelling on business" even though we had our own apartment, car etc and did this for almost a decade.

Maybe we weren't going by the rules?
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Old 02-02-2016, 08:34 AM   #52
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Maybe we weren't going by the rules?
There's certainly a lot of that happening, either knowingly or unknowingly. We're not keen on having our passports blacklisted from the EU by immigration, so we play by the rules.

The Schengen area is also relatively new. We hear from a lot of people "who did it all the time." But if they did it before 1995, the rules have changed since then.
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Old 02-02-2016, 09:09 AM   #53
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There's certainly a lot of that happening, either knowingly or unknowingly. We're not keen on having our passports blacklisted from the EU by immigration, so we play by the rules.

The Schengen area is also relatively new. We hear from a lot of people "who did it all the time." But if they did it before 1995, the rules have changed since then.
Actually I now remember (this was 1995 through 2006 time frame) that my company had cleared this process through some French gov't agency.

Water under the bridge at this point, but interesting.
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Old 02-02-2016, 04:03 PM   #54
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I checked out the latest CPI-U numbers and was surprised to see food at home is actually down -0.4% for 2015. Food inflation has been a big complaint on this board...
Yeah, I've noticed milk and cheese has been pretty cheap lately.
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