According to the article, $1 in housing in 1999 is equivalent to $1.86 today. That's... incredibly hard to believe. The Case Shiller is up over 300% for the same time period.
And $1 in food is $1.84 today? I don't have an index to reference, but also hard to believe.
Restaurant and packaged food (e.g., cookies, frozen meals) prices up an average 30% since 2020 is what I usually think too, but I also think bargains have disappeared, which is probably harder to capture.
It feels like far fewer restaurants have lunch specials than in 2020, for instance, and a lot of cheap restaurants have either raised prices to the norm or closed. Bars and casinos having discounted or free food to get you to drink has gone out the window (even where legal). And looking back 20 years, it feels like far fewer restaurants have small and simple orders available.
For instance, you used to be able to go into a diner or other casual restaurant and get a hamburger or other sandwich with no fries or side. That’s harder to find now. So is cheap, unremarkable coffee and cheap breakfast items, like small pastries or two-egg plates.
Similarly, it’s harder to find a small car, a house or apartment without central air, a 15 inch TV (though TVs have gotten cheaper), etc.
I think the big one is the people who produce inflation statistics struggle to capture increases when products change, particularly shrinkflation.
The ONS (Who produce the UK inflation statistics) specifically noted limitations in their methodology because when a particular product (whether that's a particular brand, or specific size) is discontinued, they replace it in their subsequent basket with a similar item for measuring inflation but don't measure the change in inflation from the change in product.
For example a 25p can of peas may be withdrawn from sale by the manufacturer, so the next month ONS would switch to checking the price of a 30p can of peas (the next cheapest can). The fact that people who were buying that can of peas now have to pay 5p more for peas is never captured in inflation.
This is definitely part of the problem, and another issue is quality decrease. Sure, maybe a given item has only increased 80% in price, but perhaps now the quality has decreased so that ultimately you are comparing apples to oranges.
The fun thing with quality is that statistics agencies are in fact trying to include quality change in their inflation calculation (it's called hedonic adjustment) but AFAIK they only do it for “objective quality” increases (like when CPU clock frequency increases or Disk Size increase), not when actual quality decreases.
BLS personnel don't "struggle" to capture shrinkflation. They are well aware of the issue and always normalize prices by actual weight or volume. Have you read their documentation?
Yeah - I distinctly remember back in 2006-2007 (My early college days) getting a 2 for $2 deal at McDonalds - 2 bacon, egg and cheese biscuits for $2. Now one biscuit (normally) is $3.89 and they run 2 for $5 specials, but seemingly way less often. Back in the day, the special was ran literally all the time, but even still the cost of the biscuit was under $2. And this is 7 years past 1999.
The Big Mac Index shows the price of a big mac in 2000 at $2.24, and now at $5.58, so that would put $1 in 2000 at $2.49 in 2020 which feels a lot closer to the actual number...but still low because everything "around" the entree has also increased similarly, if not more.
In about the same period Taco Bell had the .79/.89/.99 menu options. You could feed a family of four for about $10. Now even the $5 combo box is becoming rare.
One thing that happened since 1999 is the rise of price discrimination at fast food restaurants (well price discrimination in general, but fast food is easiest to see). If you have the App, you can get that $5.59 big Mac with a free fry and drink. Without the app, the meal is probably close to $10. (Just a made up example, but in general app coupons seem to often save 30-50% over not using coupons).
yeah, people are being forced to buy features or addons, which adds to the cost. this is another way to pass on inflation to the consumer marketed as a 'good deal', when it isn't. instead of an economical small car, you have to buy a bigger car which gets worse mileage and full of unwanted stuff.
It’s not anecdotal, search online for old copies of menus from popular chain restaurants.
Inflation has been retconned (i.e “Burgers were always $15, what are you talking about?”) They don’t want you to notice as your wealth is slowly stolen through the loss of purchasing power.
The gp used poor terminology. Inflation doesn't impact wealth nearly so much as income. The idle rich draw their income from capital gains on investments in the things that are becoming more expensive and are largely non negotiable. People must spend wages on shelter food energy and probably transport. They will pull back on things they enjoy but cannot afford now. The wealthy will continue to purchase what they want when they want. That is why selling high end luxury goods is a much more stable option than selling thebthings that are luxuries for those who get their income from wages.
> The idle rich draw their income from capital gains on investments in the things that are becoming more expensive and are largely non negotiable. People must spend wages on shelter food energy and probably transport.
Wages have gone up in real terms (how the fed measures inflation). Food, energy, & transport have slightly under-performed inflation.
i.e. there's no way to slice it - the average laborer can afford more food & labor now than in the past.
The linked site differs from Case Shiller - saying that housing has also under-performed inflation. I'm interested how they arrived at that.
Housing is the real problem - and the vast, vast majority of housing in the US is owned by individuals and mom-and-pop investors, not corporations & billionaires.
The idle rich cannot be blamed for our problems in housing - though they can be blamed for other things. On housing, we can only blame ourselves, voting aggressively to curtail development at every opportunity.
I'm suspicious of the food numbers too. The CPI substitues things like hamburgers for pot roast. The price of a healthy diet has increased, the price of a dose of Soylent green is less than the price of what a healthy diet used to be. And I think that is what they are reporting.
Energy is cheaper, but we need more of it with years of back to back escalating extremes for both heating and cooling. Moving somewhere that isn't an impact gets into the housing issue.
And then medical and education are out of control.
Edit: to clarify, I am not laying all this at the feet of the idle rich, nor do I think idleness or wealth are bad things. They are great things we should all strive for for ourselves and others. I lay it at the feet of all of us who have made bad decisions, but some are more responsible than others, and many of those that shaped the policies that lead to these issues are wealthy as a result.
You are living in such a society. People who bought BRKA shares 55 years ago and just sat on their asses have done immensely better than those who worked their asses off.
Wages have not stagnated. It's been a defining feature of our COVID inflation that inequality stats have gotten better.
Specifically in HCOL coastal cities, we've seen increases to minimum wage, adjustments to the "tipped minimum wage" laws that mean business needs to cover more of the wage, and finally.. labor shortages causing restaurants to pay over even those increased minimums.
It wasn't long ago NYC minimum wage was under $10/hr, with "tipped minimum" being $7/hr.
Now you have some restaurants paying $20/hr to get staff.
The Whataburger I got way-too-frequently for just under $6 in 2001 is like $10 bucks now.
MSRP of a 99 M3 = 46k; 2023 stating at $74300.
Outside of housing and gas I'm hard-pressed to think of anything that's more than double the cost. GPUs, I suppose, but that's a weird hobby transition + a lot more industrial uses.
That said, housing+gas == huge parts of people's day to day lives, obviously.
The big mac has more than doubled since 2000 according to the Big Mac Index: $2.24 -> $5.58. I think the issue is the high end didn't rise nearly as much as the low end. Your BMW is a good example..a 2000 Honda Civic: $10,750, 2023 Civic: $23,750.
Yeah, but the fast food example has a large price discrimination component. Only those not using the app pay the high prices. Last Big Mac I bought was $2.50 (earlier this year).
Civic is more interesting, since the 2023 base-model Civic has far more technology, far better safety features, automatic transmission, and is quite a big larger than the 2000 model. Wouldn’t be surprised if the 2000 base model Civic didn’t even have power windows. That being said, if all you want is basic transportation, then your choices are much more limited than they were in 2000.
It's an artifact of how the measurement is made, as it accounts for insurance profits. While a good proxy in normal times, corona sent this measure into a wild rollercoaster-ride. However, it is generally a good idea not to change the method of measuring because you do not like the measures in the short term. The most important measure is the headline number (and MoM is more informative than YoY in these times), as it is the basis for actual politics. The headline number absorbs a lot of craziness in the underlying measures.
It's included in CPI, though, right? If so, doesn't that mean this "artifact" has improperly affected the CPI making it look like inflation hasn't been as bad this year as it actually was?
Taco bell is the most ridiculous now. If I eat there I will only order a $2-$3 "value" burrito. The moment you order any kind of combo, you are out $10+.
> I ate a meal with a drink at Taco Bell for $2-3.
Taco Bell in particular has gone mad, I don't see how they can survive with current pricing. I used to go often, knowing it wasn't good quality but it was oh so cheap.
Today their prices are so high that I can go to a local taqueria and get a giant burrito with far better and fresher ingredients and friendlier service for less money than a few mystery meat tacos from Taco Bell.
So on the positive side, I now only frequent the local business with good quality food.
Compounding is the 8th wonder in the world for this reason. It's amazing how in the span of a few decades how much prices have gone up. Except for clothes and electronics, everything seems to have gotten way more expensive compared to cpi. but even iPhones still cost a lot. The situation seems out of control for things like tuition .
Compounding interest on savings for most of us is much less than inflation, so the purchasing power of work done gradually dwindles to nothing over time. Pretty depressing.
The really depressing thing is it's not just a diminishment of purchasing power, it's a transfer of purchasing power to those who first get to spend the newly created money (which tends to be financial institutions and people with the wealth/connections to gey big loans). Which needn't necessarily be the case, if the inflation occurred via evenly distributed "helicopter money" rather than the current approach.
This is maybe true if you only store money in cash equivalents. If you bought stocks, housing, or almost any other productive asset you'd easily beat inflation over your working lifetime.
I think we’ve finally hit the point where compound interest on savings is outpacing inflation (at least in the US). Savings accounts at 5%+ interest are now widely available as long as you avoid the big banks like Chase and BofA. Meanwhile inflation is still elevated, but at least its well below 5%.
OTOH, the prior 10+ years even when inflation wasn’t very high, 1% or so interest rates meant savers were falling farther and farther behind.
This probably varies from place to place. A high-quality double cheeseburger in my area can be had for $6.19, and adding tomato is only a little extra. (I checked prices a minute ago, so these numbers are fresh.)
Carl's Jr./Hardee's even advertised "The $6 Burger," which sold for about half that, as a way to say, "Look, you can get a restaurant-quality burger at our fast food chain for leas money."
We plan out meals and so we have dozens of recipes that we rotate through. Keeps things not quite boring while also keeping everything in the minds of everyone in the family so that when we ask what everyone wants for suppers this week they can think of something. Anyway, this is all to say that our grocery habits are fairly consistent. Our bill is up, in the past two years alone, between 30 and 40 percent. I haven't gone back to the old receipts to confirm exactly, but looking back at some old statements confirms that range.
It feels like "covid" and "supply chain issues" were a great excuse to wildly reshuffle prices, item availability, item quality and packaging quantity. ... And yet it doesn't seem visible in corporate profits. It's not very visible where that price difference is going. So I don't know yet. I'm open to useful data (which the current CPIs really are not.)
By this I mean, corporate profits have increased but are still most often (never mind Apple) a small fraction of price in the retail world.
Not that this explains all of the discrepancy between official statistics and what we see in reality, but the average size home has gone up over time, so if you're looking at price per square foot instead of price per home it would account for some of that. The increase in average home size is especially striking given that the average family size is declining.
Real estate prices are only indirectly included in CPI via owner-equivalent rent. Really, CPI is a joke for measuring broad inflation. It measures a specific basket of goods. Treating that basket of goods as the true value of the dollar is absurd.
CPI is ok for specific categories but the basket weighting is absolutely trash. That being said somehow healthcare indexing got messed up and it was down significantly which is silly because healthcare never goes down
So the average CPI is what an average consumer spends spread nationally. You may personally have different weightings, and so what you 'feel' inflation is like may be different than the average.
There should be an attempt to calculate inflation separately from changes in productivity. Tech, for instance, has largely been deflationary due to technological improvements. Real estate, on the other hand, has been inflationary due to monetary policy. CPI doesn’t capture that at all. They should also add real estate and other assets to the inflation calculation. Stock valuations have been historically high. Put another way, $100 today buys you less future cash flow than in past years.
> There should be an attempt to calculate inflation separately from changes in productivity.
Two questions:
1. What does that even mean?
2. For what use?
> They should also add real estate and other assets to the inflation calculation.
There is plenty of tracking of asset prices. Why should it be part of generic (i.e., consumer) inflation, other than to break all the processes that depend on that measuring consumer prices as distinct from producer prices, asset prices, etc.?
Medical care should be weighted at 20-30% to reflect how much of a burden it’s become. Childcare is severely underweighted as well. Housing is underweighted in rents and overweighted in owner equivalent rent. Those are just the obvious ones
Childcare is the average amount spent by all households, not only by the households which have childcare expenses. I spent essentially $0 on childcare now that my kids are old enough to stay home alone if my spouse and I go out. I expect to continue to spend $0 for the next 3-4 decades.
> Housing is underweighted in rents and overweighted in owner equivalent rent.
About 2/3 of Americans "own" their home. The owner-equivalent rent also happens to be about 2/3 the sum of (owner equivalent rent plus rent). That is not an accident, but rather is causally linked.
I would agree on that but compare weighting on college. Presumably not all kids make it to college but annual childcare costs in any licensed facility costs as much as college tuition so it still seems low.
Also though you may not notice it but your taxes are probably going up every year to cover additional public child care costs even if you aren’t paying directly.
Medical is probably one of the biggest mismatch categories though
These "price comparisons" really need to be divided into specific categories.
$1 from 1999 would be worth a lot more for buying a house, since house prices have gone up insane.
$1 from 1999 would be worth much less for technology: a modern-day phone would be essentially priceless, but if you only care about specs, it could be replicated in a supercomputer, albeit for >$100 million (https://news.ycombinator.com/item?id=21977330)
Even within a category it depends: certain food items (junk food) seem to have gone up in price considerably more than others.
I saw a YT vid that referenced a research paper that used a particular basket of goods to define the quality of life for a peasant in the Roman Empire.
I think the trick is to build your personal consumption basket for essential unchanging goods and use that for comparison. Certain things like the types of food I eat have been reasonably consistent over the past 20 years. So something like "how many calories & grams of protein could I buy in 2003 vs 2023", and then compare that my hypothetical wage growth over that timeframe. Or wow much is a quart of oil? I needed to do oil changes 20 years ago, and still do my own today, etc...
> $1 from 1999 would be worth much less for technology
This is expected given technology is advancing but pricing hasn't changed much if you factor in relative costs to relative performance / outcomes.
For example in 1999-2000 you could have gotten a really solid machine capable of playing Quake 3 (the latest and greatest FPS game of that time) getting a rock solid 125 fps on a CRT monitor capable of doing 120hz for around $650-700.
Realistically a solid machine nowadays with a mid-grade GPU is likely going to run you $1,000 to $1,200 and that could easily be more if you wanted a higher end GPU.
All in all you're talking about a little under double the price which is roughly what an inflation calculator says (1.85x) for the same relative outcome.
> For example in 1999-2000 you could have gotten a really solid machine capable of playing Quake 3 (the latest and greatest FPS game of that time) getting a rock solid 125 fps on a CRT monitor capable of doing 120hz for around $650-700.
In 1999, a CRT with a 20" viewable area cost $999 [1] with reviewers saying "The price point on this monitor is fantastic"
> In 1999, a CRT with a 20" viewable area cost $999 [1] with reviewers saying "The price point on this monitor is fantastic"
Not all monitors were that expensive back then.
I got a 21" 1600x1200 NEC for $150 around that time (1999-2001) that could do 120hz at the resolution I played Quake 3 at. That was shipped too even though it weighed almost more than me.
The funny thing is that $70 22" monitor you linked is 1080p which has been around for almost 20 years. I hope it's dirt cheap by now. A 1080p LCD used to be really expensive when they came out too, and most LCDs were bad back then where "good" could be categorized as having a high refresh rate, good color range and fast response times / low input latency.
Perhaps not “random farm towns”, but most “old” towns outside significant metro areas have certainly had a rough time. These places grew when population was more distributed and have been bleeding for a long time as people have consolidated in fewer cities. For example, basically everywhere in Pennsylvania outside Philly and Pittsburgh.
It is shocking to see 30, 40k homes in perfectly safe areas, albeit in what feels like a ghost town. These tend to be small and run down but they’d still be 200k+ in a large metro and who knows how much somewhere like SF or NYC.
Between 2000 and today property in the rural area I grew up in has gone from 1k/acre for non-prime farm land to 7k/acre for the same kind of junk property. Its an insane jump and has mostly happened since the pandemic (it was creeping up before that, but it really jumped during the last few years)
Even before these price increases in property there was no money in being a farmer. My grandfather had 100 acres of asparagus (bought when property was cheap in the 60s) and even with migrant labor doing all the real work, him and my grandmother had to have full time jobs. It brought in a profit don't get me wrong, but not enough to make it worthwhile as a full time pursuit. The root problem as I see it is that farming scales very, very well. The bigger you are, the cheaper your inputs become and the better you're able to negotiate sale prices. For example to farm 80/100 acres, my grandfather had to have a big Case tractor just to run the various implements that are necessary. That thing cost 100k+ and would have been just as happy doing the work on a thousand acre farm as a hundred acre farm.
Home values have gone up on paper due to real estate speculation, which CPI doesn't care about. It instead measures how much you would need to pay to rent an equivalent apartment year over year.
Plus it's shorter than saying "skyrocketed to an irrational extent, similar to what happened in the crypto market craze" and hence more expressive. Now, you might not agree that it quite did that to the same level as dogecoin, but that's a different matter than whether or not "mooned" is a good choice of words here. Personally I think hyperbole is useful and fun sometimes.
I wanted to comment with a similar sentiment, particularly about housing. I think the Case Shiller index is a solid reference. My own anecdotal experienced had me buying a house and selling it 2.5 years later (in 2022) for 72% more than what I paid for it.
I think that’s actually the big problem with the CPI - it treats a house purchase as a speculative investment, rather than a separate category of housing on equal footing with rent. I think the median housing payment (mortgage + interest) should be included in the CPI.
As someone who is looking to start a family, renting vs owning is not simply a financial question, they are totally different goods which are not interchangeable
Do you live in a slow real estate market? In the area I'm in, rent is basically equal or slightly higher than a 30 year mortgage with 20% down - if you can find a house to buy in the first place.
In Toronto, our mortgage is ½ to ⅔ of the equivalent rent these days. The startup costs for it, though, are killer — and most people's mortgages starting today would be closer to ¾ to ⅞ of rent, not counting the cash downpayment required.
Its owners equivalent rent i believe, which makes sense academically but not practically. When you are using it to gauge whether your monetary policy is causing inflation you should be looking at asset prices at least as hard as consumable prices and you shiuld be extremely wary doing substitutions.
I generally agree with the implied point that goes with this question - people who make vague claims that the CPI is inaccurate don't understand the CPI and don't have specific complaints. However, if you read through the explanatory material in that link (which, let me just say, is a fun way to spend an afternoon although I haven't any time recently) there are some complaints to be had.
It is remarkably challenging to follow what that index is measuring in real terms and whether it is measuring it accurately. It is hard to follow what biases the as-implemented sampling process might be subject to, there are several layers of weighting where it is hard to see how they were come up with and then 25% of the index is Owners' equivalent rent.
So the question is not just can people level specific complaints, but also where are we supposed to draw confidence from that this is a useful number? "Men with suits spent a lot of time coming up with it" isn't a satisfying answer. I don't want to use it for discounting my investments, if my money isn't keeping up with the M2 monetary aggregate I'm shuffling my portfolio around (even gold pretends to have real returns if you discount it using CPI, which is ridiculous). And it isn't especially useful for my personal life because my weightings are not the weightings in this table. And if wages go up based on the CPI... that just reflects workers getting screwed. We've all seen what productivity and profit trends are doing.
It looks like a baffle-them-with-bullshit con to distract from government spending and money printing by pretending that because this particular index doesn't go up everything is fine. The politicians have made the process of figuring out who is paying for the spending complicated enough that it is hard to do. That isn't a strategy that people should accept. Just because the logic is too complicated to understand doesn't mean that they've built a perpetual motion machine. Someone is losing out. This involved index is more of a distraction from the monetary aggregates at this point.
I believe they look at what people actually spend their money on to determine the basket of goods. All their data and methods are on the bls.gov website.
Do you think coal and lard should be included, like they were pre-1956? Or do you think the CPI should try to model reality?
> CPI is structurally biased to report lower inflation.
Quite the opposite. In the 1990s the Boskin Commission found that CPI was too high:
> The Boskin Commission, formally called the "Advisory Commission to Study the Consumer Price Index", was appointed by the United States Senate in 1995 to study possible bias in the computation of the Consumer Price Index (CPI), which is used to measure inflation in the United States. Its final report, titled "Toward A More Accurate Measure Of The Cost Of Living" and issued on December 4, 1996, concluded that the CPI overstated inflation by about 1.1 percentage points per year in 1996 and about 1.3 percentage points prior to 1996.
I don't think the calculation/definition makes sense to capture inflation though. The idea seems to be to measure the quality-of-life-impacting inflation and not just inflation. Which can make sense.
So if people can elude inflation of certain goods by buying differents and if that happens, inflation exists but doesn't actually impact quality of life. That seems to be the theory and foundation of the calculation logic.
The problem is that it's not necessarily true. If people completely stop buying product A (which's price increased 100x) and switch to product B (with the same price as before) then by the above calculation there is no inflation at all. However it could be that B is actually an inferior solution to their problem and while it works, they would prefer A over B when they cost the same.
So for the above calculation to be meaningful, the loss of quality-of-life would have to be measured in the case where one product is replaced by another one. And that is of course extremely difficult to do.
Therefore I would say that the above calcuation generally underestimates inflation.
It would probably be more honest to project inflation by defining a static consumer's basket and following it's price into the future. When done so, it will overestimate inflation the more time passes. So it can be combined with the method above. And the real inflation is somewhere in between.
> If people completely stop buying product A (which's price increased 100x) and switch to product B (with the same price as before) then by the above calculation there is no inflation at all.
If people completely stop buying product A and switch to product B then the model should do that as well because the model should try to match reality.
The CPI is about measuring prices of what consumers buy: the P and C in CPI.
> It would probably be more honest to project inflation by defining a static consumer's basket and following it's price into the future.
But that is not the purpose of the Consumer Price Index. There are other statistics available that may be useful:
The CPI was setup for a particular purpose and it is good at that purpose. If you want to measure something else don't try to shoehorn it in, setup a metric for what you to measure rather rather than wreck what works.
Ok, but inflation is not cost-of-living and the CPI doesn't measure either of those directly.
Its often convenient for government to conflate the two; cost-of-living is a very flexible concept and so there are lots of way to get an answer you like, but they are distinct concepts.
Surely you can understand why a changing basket of goods makes for deceptive year-to-year comparisons.
> If people completely stop buying product A and switch to product B then the model should do that as well because the model should try to match reality.
Yeah, but it doesn't and it cannot. Because it's hard to measure if people reallt "switch" and if so, why and what it means to them.
In almost a century of economics, still no one has any precise definition of inflation, or how to calculate it. How inflation is calculated and measured or even what it means, is a hotly debated topic to this day. The observation that it seems to exclude a lot of things is part of the debate.
Inflation is not simply an increase in the money supply.
Like everything else in a market, a dollar has a value. Like everything else in a market, that value changes based on supply and demand factors. An increase to the money supply will decrease the value of a dollar, so that's still correct. But you can't just ignore the demand side. For example, if the population increases, then that creates more demand for dollars, driving the price up; in such an environment, you can experience deflation even if you increase the money supply, if that increase to the money supply isn't enough to offset the increased demand from population growth. Conversely, if the population were to decrease, that would result in inflation even if the money supply was static. And population isn't the only factor driving demand, of course. It's more than just the money supply.
If you print 10% more dollars all dollars are 10% less valuable, all things being equal.
Other changes in the economy may occur that would effect price levels of various goods, prices change all the time, but one thing is certain those dollars are 10% less valuable than if you hadn't printed any.
You can claim your growth in the economy balanced it out, but dollar holders were entitled to deflation in that case but instead got higher prices. It's still a tax even if prices don't go up, beacuse they could've went down, that's what happens in competitive industrialized economies, prices fall to slightly above the cost of production and then the cost of production starts falling.
> But also – why do so many people insist that inflation is an increase in the money supply? This makes zero sense. Here’s why – our economy is mostly a credit based economy. So, if I take out a loan for $100,000 then the money supply has technically increased by $100,000. But what if I don’t actually tap that loan? What if I borrow the money because, for instance, house prices just went up 25% and I want to have some cash around for emergencies? This doesn’t tell us anything about prices, living standards or really anything. But this is what so much of the money supply represents – money that has been issued and is just sitting around unused. Why is this useful? It’s like calculating your weight changes by counting how much food you have in your refrigerator. No. That’s potential calories consumed and potential weight gain. The amount of food in your fridge tells you little about your future weight changes just like the amount of money in the economy tells us little about the actual price changes in the economy.
> If you print 10% more dollars all dollars are 10% less valuable, all things being equal.
Prices don't change immediately when the money is printed, prices begin to change when the money actually enters the market and starts bidding up prices.
This means that if you print money and add it to bank reserves or put it in a vault, that would probably have less of an effect on prices than if you threw wads of cash out of helicopters into crowds who would immediately spend it.
> Prices don't change immediately when the money is printed, prices begin to change when the money actually enters the market and starts bidding up prices.
That is a symptom of inflation, it isn't inflation itself. Playing games with timing and guessing how much the economy grew only really serves people who want to print more money as opposed to raising taxes for political reasons.
If your wages don't keep up with monetary growth but keep with CPI you'll see your standard of living decrease. Contrast the home ownership rates of your parents generation to yours to see this in action. On the other hand if your wages grew with the money supply you'd be richer than your parents due to the fact it got much cheaper to produce many of the goods you buy.
Anyone disagreeing with this should consider the opposite claim: that someone could counterfeit and spend a significant sum of money without having any negative effect on other people's purchasing power, not even over the longer term.
"and spend" is the key part. Lots of the money from QE just sat around as bank reserves and was never in the real economy being spent. That's how you can print money without causing runaway price inflation - just don't spend it.
> According to the article, $1 in housing in 1999 is equivalent to $1.86 today. That's... incredibly hard to believe. The Case Shiller is up over 300% for the same time period.
Case-Shiller is index of homes-as-an-asset buy prices, the housing component of CPI is housing-as-a-consumed-service rent prices. 1999 was pretty near historical lows for the buy:rent price ratio, today is just off the all-time high, so, yes, now:1999 for buying a home as an asset is very different than now:1999 for consuming housing as a service.
I think many areas saw a significant fall in prices in the 2009 crash, but some hot areas didn't. Those hot areas are probably 3 times as high compared to 1999, but the areas that were more normal might be closer to 1.86.
Sample of one. The house I once lived in sold for $193K in 1999, I sold it for $300K in 2007 (before the housing crash), it's Zillow estimate fell to $230K in 2010. Today the Zillow estimate is $454K. So that is 2.3 the cost.
It’s doing one to one comparison of the comparable homes. Schiller looks at average home price without adjusting for newer homes being much larger and better furnished than the ones built 25 years ago
it is appropriate here to question these numbers carefully -- and, this fits very well to lived experience over 25 years in a place with very high rate of change.. one might say an epicenter of these changes.. the SF Bay Area in California.. from what I read, Los Angeles metro is very similar... Seattle also.. these places I know well and these numbers are real from the ground view.
That's the hard to believe part, it would imply housing costs on average are only up by 86%, but that doesn't seem to be anywhere near accurate in at least large parts of the country (all the ones I looked at least when we considered moving).
Far more than SF and NYC have had housing prices more than double over the last 20 years. Hell, doubling over that timeframe would barely be over 3% inflation.
but maybe this is true if you factor in cheaper mortgages, lower rates . financing options were worse in 1999 vs 2019. Homes were very cheap in 1970 but way harder to get a good mortgage, too. much more was paid upfront.
Oh, you're assuming that CPI is computed in a rational scientific way. And that "housing" means housing. Neither is true.
Let's take a deep dive into how CPI housing is computed. You would think it could just be "track the price of every home sale in the US", or "track the price of every new rental". Ah, my naive friend, the US Bureau of Labor Statistics lives in the year 1900 as if data, electricity, compute, and statistics don't exist. Anyway, those numbers would be too scary and too objective.
First, the real kicker, CPI housing doesn't measure the cost of a house! At all. Their rationale is that the a house is an investment. So it has no relationship to the Case-Shiller index at all.
What do you measure if you don't measure the cost of housing? Well, you're left measuring rents, but that's not satisfying when a lot of people buy a home. So.. why don't we measure the imaginary rent that someone thinks that their house that they bought 30 years ago might be able to fetch.
3/4ths of the housing index is computed from a single quantity called the "Owners’ equivalent rent of residences". They ask people in a survey: “If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?”
Let that sink in for a moment. People who aren't renting their home. Who aren't real estate agents. Who have no idea what the cost to rent their home is. Who are homeowners and haven't rented a home in decades probably. "Bob, what do you think this would rent for?" "Ugh, $1400/month" Great! Let's base our entire understanding of the economy on the random answers of clueless people.
But, remember, the Bureau of Labor Statistics needs to do everything like we're in the pre-electricity era cruising around on the latest model of horse. So they can't ask too many people. Only a few thousand people, and they keep asking the same people over and over again. Seriously, they ask the same few thousand people every 6 months what their rent is and what their imaginary rent is. They even admit this doesn't change much. And they admit this means all the data they get is garbage, it's too skewed by the particular properties of those few thousand people they randomly selected once.
They could just ask 100,000 people or at least pick a different group of a few thousand every time? And then everything averages out eventually.
Doing that with your horse and buggy is way too hard. Instead they adjust the junk responses they get for the type of housing, quality, etc. With a whole bunch of magic numbers that come from yet another survey of clueless people, the Department of Energy’s Residential Energy Consumption Survey, which was last run in 2020 (although I think housing CPI is computed with the 2015 run) and asked about 5000 households a bunch of questions + got some billing info from their utilities.
They compute monthly CPI with an amazing formula that I think is the only use of a 6th degree square root I've ever seen in statistics (and I have CS/math degrees and do ML research; it's probably legit, but I'm not working backwards to figure out how they derived this).
Oh, we're done yet! Housing also gets older all the time, we need to correct for this. That's a whole pdf. That I've never read. And I'm not sacrificing my sanity for HN. https://www.bls.gov/cpi/quality-adjustment/updating-housing-... But it has a model from January 1997 with 110 degrees of freedom. That's not confidence inspiring to say the least.
Ok, so we ask clueless people to give us meaningless numbers that we then adjust based on complex largely meaningless formulas to compute an imaginary rent that doesn't exist instead of just looking at the actual cost of housing. How could this get worse? With the magic of "imputation"! A beautiful word from statistics that means "Oh, we didn't collect enough data and we have no idea what the actual number should be, so we're just going to make a number up and pretend like it's a data point we gathered based on some idea of what we think it ought to have been". Because the best data is the data you make up according to your gut.
No one with two neurons to rub together would ever adopt this methodology in the modern world.
Of course none of these numbers match any of the reality that anyone experiences. Their documentation on how anything is computed reads like standup comedy.
It's surprising how much you discount something you don't take the time to understand. Clearly your single set of experiences is superior to the century of work by thousands of professionals, probably all with far more knowledge in this area.
You should start your One True CPI and license it; you'd be rich.
I took a few seconds to understand why the 6th riot was used; it's clearly correct and if you took a moment to understand instead of discounting it, youd learn. Hint: it's 6 things multiplied together - ever hear of geometric means? Similarly I looked at the paper you discounted because the degrees of freedom somehow offended you. It too is a good model. And, as credentials go, I have a PhD and decades of modeling experience. Even so, I'd expect someone with your claimed expertise to be able to understand these.
If there were some vastly better method, traders could make money on the difference. They look at it, and cannot. There's lots of papers and research on this.
Multiple other actors,like the MIT Billion Prices project started, and others followed, measure it, and get equivalent numbers.
So, if you're so sure the BLS is stupid and wrong, there should be some group getting it right. Care to find them?
Another simple experiment you can do (and I've done) is to take a reasonable set of monthly purchases, weight costs like that, go back 40 - 50 years, and pull up ads for those goods. Pop it all in excel, and compute compound inflation over that time. Do it honestly. Then check BLS over that time. TADA! Guess what? It's pretty good. I've even gotten several friends to do this when they claim all this nonsense. They've all been surprised how well it works.
> Clearly your single set of experiences is superior to the century of work by thousands of professionals, probably all with far more knowledge in this area.
You're behaving like I am alone in criticizing the BLS for this insane methodology. There are countless papers out there about how crazy the CPI is, and specifically CPI Housing.
> You should start your One True CPI and license it; you'd be rich.
Predicting CPI and corrections to it is an established enterprise. As is predicting better inflation numbers.
> Multiple other actors,like the MIT Billion Prices project started, and others followed, measure it, and get equivalent numbers.
We're talking about housing yet you're quoting a project that specifically excludes all housing? How is this relevant? Why do I feel like you haven't read their paper?
They very explicitly show that their benchmark doesn't work outside of goods. Like they look at medical costs and show that they aren't predicted well. Sadly they don't look at housing. The project also ran at a time of very low inflation in the US so there's not much to see. It's easy to have agreement with CPI when the numbers are all fairly low, not much room to disagree at all. We can also argue how much agreement their numbers actually have with CPI.
> I took a few seconds to understand why the 6th riot was used; it's clearly correct and if you took a moment to understand instead of discounting it, youd learn. Hint: it's 6 things multiplied together - ever hear of geometric means?
Ok, I was having fun at that point. But, let's be serious. It's still stupid. And I stand by my statement, never in my life would I take a geometric mean here.
You're telling me that you would do this today? You wouldn't say set up an actual Bayesian model and compute its posterior to estimate all of these quantities? You would compute all of these indices and corrections separately? All of these little errors add up, you have no idea what's going on with them. You wouldn't want to get some confidence interval out? You wouldn't want to be able to see how variations in your assumptions can change the results? You would impute the missing numbers with whatever felt good? Come on. This isn't acceptable methodology in any field that I've ever been a part of.
> Similarly I looked at the paper you discounted because the degrees of freedom somehow offended you. It too is a good model. And, as credentials go, I have a PhD and decades of modeling experience. Even so, I'd expect someone with your claimed expertise to be able to understand these.
You're telling me that the best you can think of model wise is a linear country-wide model with an R^2 of 0.5? After decades of modeling experience that's all you've got? And that one R^2 is enough to make you believe this is a good model? That's the standard of evidence you use before you commit trillions of dollars to a model? Give me a break! This is the initial analysis an undergrad would make in a mediocre course project they didn't put much effort into. Even our undergrad courses have far higher standards than that paper.
> Well, you're left measuring rents, but that's not satisfying when a lot of people buy a home.
It's perfectly satisfactory when the accepted rationale for many, many home purchases is as an investment vehicle, rather than as just as home (which is what rent covers).
> No one with two neurons to rub together would ever adopt this methodology in the modern world.
You're seriously making the claim that the BLS has nobody with your intelligence in a powerful position?
> You're seriously making the claim that the BLS has nobody with your intelligence in a powerful position?
It has nothing to do with intelligence. And of course statisticians at BLS know that this is trash.
Any economics or statistics student could do be a better job. And certainly, no statistician worth their salt would compute anything with the methodology that BLS uses. I cannot imagine a paper being published based on this methodology. It's not that reviewers would reject it, it's that no one in a position to submit such a paper would ever do so because of the shame associated with doing such shoddy work. I'm not sure I'm doing a good job of explaining how incredibly subpar this is.
BLS has other priorities. Changing the methodology isn't easy at all. All of your old numbers don't make any sense anymore. You can't go back and recompute them. And people would fight over what methodology to use.
Everything they do follows this insane totally outdated approach, it would be really confusing to have parts that are modern and parts that are ancient; perhaps even more confusing than the current mess.
There are no incentives to change anything. Who will make them change something? Congress? They have a worksheet, they run it, they get numbers, garbage in/garbage out, people use the numbers regardless.
Hardly anyone knows how these numbers are computed. Hardly anyone cares that they are unscientific trash. Pretty much everyone stops at the title associated with the number.
> Any economics or statistics student could do be a better job. And certainly, no statistician worth their salt would compute anything with the methodology that BLS uses.
So every bond trader, Fed observer, academic economist, investment bank economist, pension fund, union, etc, are all aware of this bad methodology in the BLS CPI, and are saying nothing? All these people with heaps of money on the line in one of the most looked-at statistics published are… ignoring the problem?
> Hardly anyone knows how these numbers are computed. Hardly anyone cares that they are unscientific trash. Pretty much everyone stops at the title associated with the number.
Really? Because MIT's Billion Prices Project (BPP; an index of internet prices, scraped daily) found the CPI and the BPP are very tightly intertwined:
> So every bond trader, Fed observer, academic economist, investment bank economist, pension fund, union, etc, are all aware of this bad methodology in the BLS CPI, and are saying nothing? All these people with heaps of money on the line in one of the most looked-at statistics published are… ignoring the problem?
No, they make money off the problem by computing better numbers internally. And there are countless papers out there criticizing the BLS for their shoddy methodology.
> Really? Because MIT's Billion Prices Project (BPP; an index of internet prices, scraped daily) found the CPI and the BPP are very tightly intertwined:
Funny someone else brought that up. That's "true" as long as you don't look at any of the details and don't read their publications.
They don't measure housing for one thing, and that's what we were talking about here. Only goods. They even show that services aren't well estimated at all. And even some categories of goods aren't. And they unfortunately ran at a time of historically low inflation. It's much easier to predict a number that is very low and has very small range.
So.. the MIT project is about the wrong category of goods. Computed in a totally different way by the BLS. Nothing in my post applies to it. And they explicitly show that they don't agree with CPI on categories like it (simply because their project isn't relevant to them).
There is no internationally agreed upon method for housing/shelter, with pros and cons for each:
> International statistical agencies have unanimously adopted the net acquisition approach for durables, but there is no consensus about the best approach to the treatment of OA in the CPI16 (Table 1). Rental equivalence is the most popular approach among countries belonging to the Organisation for Economic Co- operation and Development.17 Johnson’s (2015) recent review of the U.K. CPI proposes using CPIH, which includes the costs of OA and is based on a rental- equivalence approach, as the U.K.’s main measure of inflation. Several countries in the European Union have refrained from incorporating OA into their CPI, although Eurostat is currently conducting a pilot study for the euro area based on the net acquisition approach. Australia and New Zealand use a net acquisition approach, while Sweden and Finland—like Canada—are using a partial user-cost approach. No country has adopted a full-fledged user-cost approach.
People also often confuse the price of the asset (e.g., land) with the price of the home/structure.
> The [US] BLS views housing as a mostly “investment” item as opposed to a consumption item. So, for instance, when you consume a hot dog and have to replace it then the cost of replacement is a direct reflection on your well-being. A $1 hot dog that costs $2 one year later is a material change in living standards, all else equal, since the hot dog is an asset that you literally consume. A house is much more complex. [...]
> Of course, anyone who owns a house knows that it’s not that simple. You do basically consume your house over time. For instance, my home has appreciated substantially since I purchased it just 5 years ago and underwent a hellish remodel. At that time the cost of replacement was roughly $300 per square foot. But in the ensuing years the cost of replacement has increased to $400 per square foot. As my physical home falls apart over the years I will need to replace it. But the key point is that, as I replace these components the housing market is likely to revalue the total home value to account for this investment. So even though I am consuming my house over time I am very likely to recoup those costs.
The house (home) is not being sold for one million dollars. The land is being sold for $950K, and the buyer is getting $50K worth of structure.
Similarly if you are a home owner your home/structure depreciates over time so you have to do maintenance on it over time. And because of various shortages (e.g., lumber, plumbing fixtures) the cost of upkeep has gone up. Upkeep is a part of the CPI: the "C" in CPI stands for consumer.
And why the component is called Shelter and not Housing, at least in Canada:
Canada has always had far better statistics than the US. Both for CPI and for unemployment. This often leads to Canada looking worse, for example, by having a higher unemployment rate, when instead, Canada just has a much better way of counting who is actually unemployed.
> There is no internationally agreed upon method for housing/shelter
Agreed. But, I think that we can also agree that basing most of the number on asking people what the imaginary rent of their home might be is totally worthless.
> In the Canadian CPI paper there is some explanation towards the complexities of shelter / owner accommodation:
And you'll note that Canada doesn't use Owners' Equivalent Rent, never mind making it the majority of the index. Instead it actually computes what it would likely cost to rent that dwelling: mortgage, replacement cost, property taxes, maintenance, and other costs. That's a far more rational way of doing it.
And plenty of folks in Canada think like you do: that the official way Is Wrong and Some Other way should be used—often pointing to the US as the way it should be done. And yet here is someone in the US saying the Canadian way should be the way. ¯\_(ツ)_/¯
At the end of the day, you have some things that are a huge component of the CoL for some people (housing, car) that are fairly modest for others who have a paid-off mortgage or live in a LCoL area and either don't own a car or drive a paid-off old one.
Assuming the inflation of those items differ significantly from a broader basket of goods, there's no way to have a single measure that reasonably represents price increases for the two groups.
Owners equivalent is an insane, distortionary metric here when you can just look at the market data for similar sized properties. No one who was going to rent their house would do a survey of what their neighbors with similar sized homes think they should charge for it. They’d look at what the market rate is for their neighborhood. This is, of course, what property management companies actually do on behalf of owners.
Further, there is no internationally agreed upon method for housing/shelter, with pros and cons for each:
> International statistical agencies have unanimously adopted the net acquisition approach for durables, but there is no consensus about the best approach to the treatment of OA in the CPI16 (Table 1). Rental equivalence is the most popular approach among countries belonging to the Organisation for Economic Co- operation and Development.17 Johnson’s (2015) recent review of the U.K. CPI proposes using CPIH, which includes the costs of OA and is based on a rental- equivalence approach, as the U.K.’s main measure of inflation. Several countries in the European Union have refrained from incorporating OA into their CPI, although Eurostat is currently conducting a pilot study for the euro area based on the net acquisition approach. Australia and New Zealand use a net acquisition approach, while Sweden and Finland—like Canada—are using a partial user-cost approach. No country has adopted a full-fledged user-cost approach.
Seems like any particular system has pros and cons. Someplace else in this thread someone mentioned that Canada's system for Shelter is better, but even StatCan recognizes limitations of what they use:
And plenty of folks in Canada think like you do: that the official way Is Wrong and Some Other way should be used—often pointing to the US as the way it should be done. And yet elsewhere in the thread someone in the US saying the Canadian way should be the way. ¯\_(ツ)_/¯
You’re completely missing my point: we already have firms who do what the BLS claims to be doing that have greater predictive power and determinative impact on what people play for housing. Ignoring that reality to shrug and go “lots of countries measure things in ways that don’t make any sense so what can you do” is not a refutation of anything.
> You’re completely missing my point: we already have firms who do what the BLS claims to be doing that have greater predictive power and determinative impact on what people play for housing.
I agree that what the BLS is doing is not predictive. Because that's not the point of the CPI: it's measuring what happened in the past.
That's why the numbers that were released on October 12, 2023 were for what happened in September 2023, not November 2023.
See also determinative, which is what the BLS is trying to measure, i.e. what would be actually paid were the housing made available as a rental. No firm trying to calculate rents for a new rental would do what the BLS does, which is why their number are bullshit. If you can’t acknowledge this, it seems like you’re just being intentionally obtuse.
> Sometimes I feel like people read some econ 101 and the admittedly intuitive idea that inflation is “always and everywhere a monetary phenomenon”, but didn’t stop to think that it might be a lot more complex than that.
This is the case with almost every armchair economics comment. The same thing happens with the complexity of affordable housing: “It’s all just supply and demand! Econ 101!”
The graph is referencing the Consumer Price Index.
I think that the official inflation numbers given are low to the point of absurdity. Time to dust off criticisms of the CPI... Most likely, no doubt, there's some political deflation of the numbers.
And $1 in food is $1.84 today? I don't have an index to reference, but also hard to believe.