Independent CPI numbers

[Gresham]

First post, so I will start by thanking everyone that is active in the iTulip community for all I have learned. I am a neophyte in the area of macroeconomics (doing my best to learn all I can) so I will be very limited in my posting to this board so as not to clutter it up.

I do have a question and possibly an idea that I think could be useful to the users of iTulip and the maybe right place to get it going if it is truly a useful idea.

Has it ever been considered at iTulip or is anyone somewhere independently generating CPI numbers that are not tied to government data, but through regional volunteers? What I was thinking is independent measurement or CPI and CPI-U, similar to what is being done at Now and Futures with M3. Would readers of iTulip find this useful?

This would clearly require some work in determining what the basket of good should be, volunteers that would be willing to go out and get pricing on the items within the basket every so often and several volunteers in each region and then crunching the numbers now and then. I think this data would be useful and would grow more valuable with time if the allocation of the basket was not changed over time as the government likes to do.

I would be willing to price out the basket in the Philadelphiala area as needed.

Thanks again for all I have learned.

Gresham

[jk]

Re: Independent CPI numbers

try shadowstats.com

[bart]

Re: Independent CPI numbers

try shadowstats.com

Couldn't have said it better myself, and I obviously haven't done a good enough job on my CPI lies page either.
All those adjustment factors are the publicly available ones from shadowstats.com, and full credit should go to John Williams.

[Finster]

Re: Independent CPI numbers

I'll go along with jk and bart. William's ShadowStats provides the best index of US consumer prices I know of.

The best index of overall inflation, however, is my FDI. For further information, check out my site.

[Jim Nickerson]

Re: Independent CPI numbers

I'll go along with jk and bart. William's ShadowStats provides the best index of US consumer prices I know of.

The best index of overall inflation, however, is my FDI. For further information, check out my site.

Is this spam?

Finster is on spam alert, watch him?

[bart]

Re: Independent CPI numbers

Is this spam?

Finster is on spam alert, watch him?

*sniff, sniff*... nope, just the normal Finny... but I'll throw something out there to help keep him calm... ;)

[Tet]

Re: Independent CPI numbers

First post, so I will start by thanking everyone that is active in the iTulip community for all I have learned. I am a neophyte in the area of macroeconomics (doing my best to learn all I can) so I will be very limited in my posting to this board so as not to clutter it up.

I do have a question and possibly an idea that I think could be useful to the users of iTulip and the maybe right place to get it going if it is truly a useful idea.

Has it ever been considered at iTulip or is anyone somewhere independently generating CPI numbers that are not tied to government data, but through regional volunteers?

All you need to do is simply look at your paycheck stub, if it goes up considerably, than you know you have inflation, if it doesn't than you know you don't. Are you making a lot more money? If not than you need to understand that's the only number the Fed looks at for inflation.

[Finster]

Re: Independent CPI numbers

*sniff, sniff*... nope, just the normal Finny... but I'll throw something out there to help keep him calm... ;)

Mmmm, yummy!

[Finster]

Re: Independent CPI numbers

One other point that Gresham raises relates to data collection. The alternative inflation indices cited are rather meta-indices in that they rely on data collection done by others; the SGS-CPI, for example, merely reinterpreting the data collected by the BLS and used in the BLS-CPI.

This is because data collection is a daunting enterprise in itself, especially with the sheer breadth of data required in order to construct an index of price inflation. In addition, while plenty of us may question the final figures the BLS publishes, our beef is with the statistical massage the data are given in the process of arriving at the final index, not with the data per se. Mine includes the application of such ledgerdemain as "owner's equivalent rent" (probably the worst distortion of all), as well as the predominantly one-way application of "hedonics". But again, these are fudges in data processing, not the underlying data itself.

If anyone does have specific reason to question the data itself, please speak up!

[jk]

Re: Independent CPI numbers

as a consumption index, having owner's equivalent rent in the cpi isn't a bad idea. house prices are a feature of the asset, rent the consumption. i think substitution [e.g. steak just got expensive, so let's assume you eat catfood instead] is particularly heinous, and geometric averaging insidious. hedonics make sense superficially, but applied to e.g. computers are total nonsense.

[bart]

Re: Independent CPI numbers

as a consumption index, having owner's equivalent rent in the cpi isn't a bad idea. house prices are a feature of the asset, rent the consumption. i think substitution [e.g. steak just got expensive, so let's assume you eat catfood instead] is particularly heinous, and geometric averaging insidious. hedonics make sense superficially, but applied to e.g. computers are total nonsense.

It goes much further than that with hedonics. If they use it to lower the value of a TV with Picture in Picture and lower the value of so many other things the same way, how about raising *any* values? Nowhere is shown things like a 2x4 changing to a 1.5x3.5 piece of lumber. That should also have an apples to apples increase factor, as well as adjusting for so many many other areas where quality is lower.

As far as a consumption index having an owners's equivalent rent, perhaps... but just the fact that it's a consumption index and nowhere to be found is an actual index of total inflation makes it a moot point.

The real issue is lies, heinous lies and more BS.

I can also make a case that a house is very much part of consumption (and without even touching the bogus way that rent is calculated), and that asset inflation of all types is very much part of the prices that consumers pay.

[Finster]

Re: Independent CPI numbers

as a consumption index, having owner's equivalent rent in the cpi isn't a bad idea. house prices are a feature of the asset, rent the consumption. i think substitution [e.g. steak just got expensive, so let's assume you eat catfood instead] is particularly heinous, and geometric averaging insidious. hedonics make sense superficially, but applied to e.g. computers are total nonsense.

It's a HORRIBLE idea!!!

The problem can be illustrated as follows: Real estate cap rates (the rate of rent compared to price) track interest rates. Thus, when interest rates are low and conducive to inflation, rents tend to lag behind ownership prices, depressing the inflationary effect in the CPI.

The irony is that the very same instrument of inflation (low interest rates) itself helps suppress the measurement of inflation!

[jk]

Re: Independent CPI numbers

It's a HORRIBLE idea!!!

The problem can be illustrated as follows: Real estate cap rates (the rate of rent compared to price) track interest rates. Thus, when interest rates are low and conducive to inflation, rents tend to lag behind ownership prices, depressing the inflationary effect in the CPI.

The irony is that the very same instrument of inflation (low interest rates) itself helps suppress the measurement of inflation!

it's a horrible instrument of policy, perhaps. but the cpi isn't a leading index; it's concurrent. and so food, clothing and shelter are appropriately included at the current costs.

[Finster]

Re: Independent CPI numbers

it's a horrible instrument of policy, perhaps. but the cpi isn't a leading index; it's concurrent. and so food, clothing and shelter are appropriately included at the current costs.

It's concurrent only in the narrow measure of consumer prices. As far as inflation goes, it's a lagging index. And since it is so frequently used as an "inflation" index, that's a big problem.

Owner's equivalent rent is not a "current" cost, either. This is neither the cost of buying nor the cost of renting; it's a statistical sleight-of-hand that converts a real price into a fictional one. It's fundamental assumption is fiction - that the owner of a home is not an owner but a renter.

The distorting effects of this fiction on an index that is widely taken to be a measure of inflation are horrible indeed, because it removes one of the most direct impacts of inflationary policy from the measure of inflation.

Suppose the Fed cuts interest rates, and as a result mortgage rates fall by half. In rough terms, this means the same monthly payment that would have bought a $100,000 house yesterday will now buy a $200,000 house. Meanwhile, the monetary action by the Fed results in billions of dollars being created from nothing and being directed into the housing market and the prices of houses soaring, as a result of the borrowing of all the freshly minted dollars going into buyer's mortgages and into seller's hands. Those dollars are now effectively worth half what they were in the housing market because it now takes twice as many of them to buy the same house.

This is a powerfully inflationary event.

But this means that the rental equivalent of a $100,000 house yesterday is now the rental equivalent of a $200,000 house. Owner's equivalent rent doesn't budge. There is no impact on the CPI. This hugely inflationary event is summarily cancelled out of the most cited index of inflation by the use of a statistical fiction.

[jk]

Re: Independent CPI numbers

It's concurrent only in the narrow measure of consumer prices.

and that's why it's called a CONSUMER PRICE index. it's a measure of CONSUMER PRICES!!:rolleyes:

As far as inflation goes, it's a lagging index. And since it is so frequently used as an "inflation" index, that's a big problem.

you are abolutely right that the cpi is too narrow a measure. at least i think so. the monetary powers, on the other hand, appear to truly believe that other forms of inflation are not their purview.

Owner's equivalent rent is not a "current" cost, either. This is neither the cost of buying nor the cost of renting; it's a statistical sleight-of-hand that converts a real price into a fictional one. It's fundamental assumption is fiction - that the owner of a home is not an owner but a renter.

owner's equivalent rent is precisely the tool to separate out the cost of current use of the house from the house's value as an asset.

when my family was younger, we used to vacation for 2 weeks on martha's vineyard, renting a house. occasionally, i would do the math- calculate an approximate rental income over the 10-12 weeks a year such a home could be rented and compare it to the real estate values i could see in the listings in the martha's vineyard gazette. as you can easily imagine, the real estate prices never made economic sense.

i was indeed a renter, and you could have included the cost of the rental in my personal cost of living. but let's say, for argument's sake, that the owners reserved 2 weeks in august for their personal use, and that otherwise they only visited the place off-season when the rental value was zilch. how do you calculate the value of their consumption/use of their vacation home? the income they are foregoing is precisely the rental value for the two weeks they use it in august. isn't that value precisely the "cost" of using it for those two weeks? and aren't the real estate taxes, maintenance costs, etc better accounted for in their role as investment property owners?