"And yet inflation is as low or lower than it has been in the past 30 years. Not to mention compared to the high inflation of the '70s."
The problem with this statement is that 'inflation', as a measurement, has changed greatly over 30 years. To use a technical analogy comparing inflation in the 70s is like comparing "lines of code to implement a function" in a RISC assembly language and python. The only thing that is comparable is that they are both programming languages.
There is a particularly telling comment that came out of the fiscal cliff negotiations, where the Senate asked for a change in the way 'inflation' was computed to avoid a big hit with respect to government programs tied to the CPI. (search for "chained CPI fiscal cliff" for various examples). This very explicit mention of managing the CPI to avoid increases aside, my father who is on a military pension (also indexed to the official government "inflation" rate) has a pretty good history of expenses, and their rise, during his retirement which does not correlate at all with the government rate.
There are some pretty tin foil like sites like www.shadowstats.com but you can also use various search metrics to create a 'bundle' of expenses (housing, food, clothing, gas, taxes, and utilities) and create your own view of what the cost of living has done over the last 20 years. Add in the effects of 'unit deflation' where a 16 oz box of breakfast cereal is now 11.2oz and you realize that the cost of living is going up more than your government is sharing with you, even informally. Their motive is pretty simple, they want to avoid killing the budget with huge increases in indexed aid and indexed treasuries (called inflation protected securities).
But it is interesting that you mentioned the 70's because that is where this started. No one except economists and policy wonks "cared" about inflation until it became an election issue. Then voters started "caring" a lot so the congress has helped "clarify" what it means more and more. Its one of the things I would do if elected to congress (not that I'm running) is I would create a steel wall between economic statistics and legislators. Government manipulation of them does more harm than good unfortunately, but nearly every government manipulates them to some extent.
The CPI has a number of (serious) problems and I would never suggest that congress attempted to change the calculation for anything other than cynical reasons, but the proposed change would coincidentally be the better measure.
The current method which is often used to adjust nominal expenditures into current dollars is calculated using a Laspeyres index which, year-over-year, does not account for the fact that when prices change people shift their patterns of consumption.
A Paasche index is somewhat the reverse of this in that it assumes that what you purchased last year was the same as what you purchased this year.
The Fisher index is the geometric mean of the two and if you've had a chance to study some of the methods and difficulties of constructing price indexes, it does offer a plausible compromise between the two, allowing for substition but giving some weight to both indices.
However that it accomodates changes in consumption or "substitution" lets lobbies like the AARP exclaim that it hides the case that retirees have to switch from beef tenderloin to cat food when prices rise.
But in actuality it's both a pretty minor change and the better measure of price changes (if the underlying data can be trusted).
'Inflation' hasn't changed, one particular measure of it, the CPI has changed. There are other measures, though, that are calculated differently. And the PPI, the GDP deflator, what wage indices I can find, and the Billion Prices Project all say that the current rate of inflation is between 1 and 3%. Which is basically as low as US inflation has gotten in post WWII-history, baring the bout of deflation we had at the start of the financial crisis.
Yes, by selectively looking at one category of good while ignoring other you can create your own special index such that inflation looks like it's high, but that's always true except in a static economy.
As to people worrying too much about inflation, well, I agree in general. But please read the Wikipedia page on inflation to see the reason why politicians might want to care about inflation even if the voters don't.
The problem with this statement is that 'inflation', as a measurement, has changed greatly over 30 years. To use a technical analogy comparing inflation in the 70s is like comparing "lines of code to implement a function" in a RISC assembly language and python. The only thing that is comparable is that they are both programming languages.
There is a particularly telling comment that came out of the fiscal cliff negotiations, where the Senate asked for a change in the way 'inflation' was computed to avoid a big hit with respect to government programs tied to the CPI. (search for "chained CPI fiscal cliff" for various examples). This very explicit mention of managing the CPI to avoid increases aside, my father who is on a military pension (also indexed to the official government "inflation" rate) has a pretty good history of expenses, and their rise, during his retirement which does not correlate at all with the government rate.
There are some pretty tin foil like sites like www.shadowstats.com but you can also use various search metrics to create a 'bundle' of expenses (housing, food, clothing, gas, taxes, and utilities) and create your own view of what the cost of living has done over the last 20 years. Add in the effects of 'unit deflation' where a 16 oz box of breakfast cereal is now 11.2oz and you realize that the cost of living is going up more than your government is sharing with you, even informally. Their motive is pretty simple, they want to avoid killing the budget with huge increases in indexed aid and indexed treasuries (called inflation protected securities).
But it is interesting that you mentioned the 70's because that is where this started. No one except economists and policy wonks "cared" about inflation until it became an election issue. Then voters started "caring" a lot so the congress has helped "clarify" what it means more and more. Its one of the things I would do if elected to congress (not that I'm running) is I would create a steel wall between economic statistics and legislators. Government manipulation of them does more harm than good unfortunately, but nearly every government manipulates them to some extent.