Change in CPI Calculation

[cute fuzzy bunny]

Honestly, I wouldnt expect the govt to issue 87 different tips, but I dont see any problem with paying the CPI adjustment based on the primary residence address. Same with social security. If they have the numbers, its just a matter of a computer doing 2 milliseconds worth of work to figure it out.

Really not my biggest concern though. I got hot about this when I read their paperwork on the hedonic adjustment for computers. My last job was all about explaining to people why they needed faster computers and why they would be better for them. The white paper on hedonic adjustments for computers is 110% hogwash and not one of my former customers, industry pundits or analysts would have bought the arguments used. If I had presented it, I would have been laughed out of the room.

While little hedonic and basket adjustment is being done, that the mechanism has been put in place and used sparingly is of concern. Slow boiled frogs anyone?

What makes me more jittery is that greenspan keeps saying he thinks inflation is OVERSTATED by a percent or so.

My expedition includes the 5.4l engine and all of the extras included in the current models base. So the 28k/36k is apples and apples. I'm quite familiar with the product and unless they've incorporated build quality changes to make it less of a piece of #@$% my truck is (excepting some cosmetics) identical. That comes to about a 5% a year cost increase. During a period of lower or no inflation...

Even the explorer similarly equipped would cost a bit more. But I could buy an escape for that money. Now thats sure equal.

You heard about ford dropping the bronco because they felt it was too cemented in peoples minds with the OJ simpson white bronco slow police chase? So they replaced it with the Escape. Make your own joke...

 

[sgeeeee]

I couldn't find much about how the BLS deals with substitution in the CPI.  What I did find said that they don't do substitution at all.

That's what I remember reading too.  A lot of the concerns expressed about CPI seem inconsistent with the information on their web site.  And a lot of the concerns are addressed and well-explained on that site.  

I wish I had better sources about the CPI, but I think my 7 year old nephew did their website design. 

 I think you are selling your 7 year old nephew short.

I am interested in how those of you who have calculated a personal inflation rate managed to do it.  I keep pretty thorough records of my expenditures, but I am not nearly enough a creature of habit that I can compare my grocery bills from year to year and come up with an overall personal grocery inflation rate.  Other expenditure categories are even worse.  I ended up dividing my expenditures into the categories used for CPI but in my own ratios and for Phoenix instead of the national average.  I ended up with a slightly higher than CPI personal inflation rate, but the difference was less than 1%.

I do agree with TH that people who depend on TIPS or I-bonds to keep up with inflation are being naive.  The personal spending habits and geographical differences between any individual's case and the national average can be significant.  

 

[cute fuzzy bunny]

I ended up with a slightly higher than CPI personal inflation rate, but the difference was less than 1%.

Multiply by 20 years.

I do agree with TH

WHAAAAAAAAAAAAAAAAA?!!!!??! (Rubbing eyes)

Good thing wife made me an eye doctors appointment yesterday...

 

[justin]

I just did a little personal inflation analysis on my car. 2000 honda civic lx 4 door sedan (it's birthday is Monday - what a sweet car). I can't remember the exact MSRP when I bought it, but based on what I know about it, the price has gone up at around 1% on an annual basis. Half of what CPI inflation was. And in the meantime, there is a new body design. When comparing the 2005 Civic LX to my 2000 Civic LX, I was shocked to find that it now comes standard with keyless entry, CD player, bigger engine, bigger gas tank, and better fuel economy.

th, maybe you are buying the wrong kind of car. At least some cars keep getting better and cheaper* over time. I wonder if Honda sets their MSRP's close to the sale price, while Ford keeps inflating their MSRP while lowering the actual sale price. I know around here, you can get new expeditions for 8-12 thousand off MSRP pretty easy.

* adjusted for inflation

 

[cute fuzzy bunny]

Sure...but I got my expedition for ~8k off.

The honda civic lx 4 door sedan's MSRP has gone up 15% between 2000 and 2005 based on what I can see, but there are so many models...who really knows?

 

[Martha]

Multiply by 20 years.
WHAAAAAAAAAAAAAAAAA?!!!!??! (Rubbing eyes)

Good thing wife made me an eye doctors appointment yesterday...

So you going to be a presbyoterian after all?

 

[cute fuzzy bunny]

Jury's still out on the change of religion Martha

 

[justin]

Sure...but I got my expedition for ~8k off.

The honda civic lx 4 door sedan's MSRP has gone up 15% between 2000 and 2005 based on what I can see, but there are so many models...who really knows?

More like a 7% increase. I think when I bought my new 2000 civic LX sedan 4 door in 2000, the MSRP was $15,800 (maybe higher, not sure). Now it is $16,925 for the exact same make model and trim. Except the 2005 has a lot more features and is better. The 7% increase is 1.4% annualized. Half of CPI inflation. Of course, who pays MSRP anyway?!

 

[cute fuzzy bunny]

Ok, we have different numbers. I have the 2000 MSRP data from edmunds site and its ~12,900 from memory (I aint looking it up again). The 16925 number sounds right. I used the same site to give me the numbers for the same model for both years, so maybe you've got an apple and an orange. Not that it matters, we're picking nits. Nobody pays MSRP but you have to pick a point to measure, and what someone can negotiate isnt a measurable. Note also that Toyota plans to raise prices substantially in the near term to "help american car makers" (you cant make this stuff up), and honda is expected to follow suit.

What I care about is that MY inflation is a lot higher than CPI.

As a result, I wont buy any CPI adjusted financial instruments with the thought that they'll produce 'real' returns. I dont agree that CPI calculations that I see posted are truly representative of many peoples/areas actual realized inflation rates. Many of the items many people buy have gone up substantially in the last 5 years. The hedonic adjustments I've looked at are hogwash.

 

[justin]

I just came across this from a Yahoo! finance poll question:

"Apparently being super wealthy isn't all champagne wishes and caviar dreams... [T]he price index for luxury items marketed exclusively to the Ultra High Net Worth Individuals (net worth >$30 million) increased 11.3% in 2004 compared to 6.4% for "High Net Worth" individuals (net worth >$1 million) and only 3% for the average citizen. The UHNW index includes exotic items like private jets, Rolls Royces and luxury yachts. The high net worth index includes items like first class airfare, Mercedes Benzes and smaller yachts. The index used to measure the cost of living for the average citizen, known as the Consumer Price Index (CPI), includes everyday items like breakfast cereal, milk, gas, eyeglasses and clothing."

The original report that this data comes from is at: http://www.us.capgemini.com/DownloadLibrary/requestfile.asp?ID=468
Use the email address "sfhffsh@jaja.com" to log in.

Th, maybe you and the rest that are seeing 1-2% inflation over the CPI each year are experiencing the High Net Worth inflation rate for luxury goods!

 

[laurence]

When I was getting my Econ degree in the mid 90's the professors were explaining that the government was going to input a "chain-weighted" price index policy for inflation instead of pure CPI. You all covered the meat of that in your previous posts - substitution, turkey for hamburger etc. We (professors and students) guessed at that time that it was another way for the government to manipulate the numbers to lowere their costs by shifting the burden on us, namely, depress bond rates tips etc.


I love the core rate of inflation, cracks me up every time they say, "one you remove the 'volitile' food, energy, and housing prices" and then tell you a rosy number. EXCUSE ME! So once you remove where 90% of my expenditures are, inflation ain't bad? Huh? And does 'volatile' mean "go up really fast" in swahili?

 

[Marshac]

'volitile' food

I think they mean hard alcohol... some of it is pretty volatile It will ease the pain at the very least.

 

[preben]

The UHNW index includes exotic items like private jets, Rolls Royces and luxury yachts

Ah! THAT explains... gotta cut down on those one of these days...