Krugman: CPI is accurate

[raja]

For all those anti-Krugmanites, where is the flaw in his thinking? Is Shadowstats wrong? What's the truth here?

September 24, 2011, 4:15 pmA Quick Note On Inflation

People like Greg Mankiw are relaxed about the inflation situation; I’m worried that it will get too low. But there are always people popping up in various places arguing either that (a) the official numbers vastly understate true inflation or (b) recent inflation has been pretty high, and we should be worried about it going still higher.
So what’s the response?
On the first claim, as many people have pointed out, if you really believe that we have 10 percent inflation, none of our other economic numbers make sense: real GDP must be plunging, which is inconsistent with everything else we see. Even aside from those considerations, however, we now have inflation estimates that are completely independent of the official numbers, such as the Billion Price Index. What’s that index saying? Just about the same as official inflation (not exactly the same, because the coverage is different):



Of course, if you think that the MIT guys are also in on the conspiracy …

Now, what about that 3.8 percent rise in the CPI over the past year? Well, if you look at the detail, you see that it’s very largely about commodity prices — oil mostly, but also to some extent food, and even the bulge in apparel prices is probably mainly about cotton.

And all that is history — it’s the bulge of late 2010 and early 2011 working its way through the pipeline. And that commodity price boom didn’t persist; indeed, it’s gone into reverse.

All of that is the reason the markets don’t see a lot of inflation looking forward — and neither do I.

[Slimprofits]

Re: Krugman: CPI is accurate

I trust MIT's numbers.

Now, what about that 3.8 percent rise in the CPI over the past year? Well, if you look at the detail, you see that it’s very largely about commodity prices — oil mostly, but also to some extent food, and even the bulge in apparel prices is probably mainly about cotton.

When you're wealthy and have servants to do your shopping and cart your lazy ass around Manhattan, these things don't matter very much.

[c1ue]

Re: Krugman: CPI is accurate

The flaw is that the billion price index isn't apportioned according to relative consumption.

I couldn't swear to it, but I'm pretty darn sure that oil in its various forms is only represented by a dozen or two prices in the billion price index.

Cell phones, laptops, netbooks, tablets, etc in contrast are probably hundreds if not thousands of entries.

What do we consume more of each year, directly and indirectly? Oil or semiconductors?

As usual that moron is using something to assert his desired view, as opposed to thinking critically and objectively.

[lakedaemonian]

Re: Krugman: CPI is accurate

The flaw is that the billion price index isn't apportioned according to relative consumption.

I couldn't swear to it, but I'm pretty darn sure that oil in its various forms is only represented by a dozen or two prices in the billion price index.

Cell phones, laptops, netbooks, tablets, etc in contrast are probably hundreds if not thousands of entries.

What do we consume more of each year, directly and indirectly? Oil or semiconductors?

As usual that moron is using something to assert his desired view, as opposed to thinking critically and objectively.

Interesting point....I would be keen to read other opinions as well about the makeup and accuracy/relevancy to average Joe 6 Pack.

I'm not looking for a conspiracy...I'm more of a "aligned interests" kind of guy

But if the BPP doesn't accurately measure inflation from the J6P perspective(but it used by the likes of Krugman to support lower than real inflation), is it at risk of being used to push a "BLS IS accurate and not politicized because BPP says so" meme?

I see BPP has also given birth to PriceStats:

www.pricestats.com

Can't see who the team are that make up the company yet.

I wonder how much Federal money MIT brings in annually? Is there a risk of BPP and/or PriceStats inflation analysis output being politically polluted like the BLS?

[Raz]

Re: Krugman: CPI is accurate

The flaw is that the billion price index isn't apportioned according to relative consumption.

I couldn't swear to it, but I'm pretty darn sure that oil in its various forms is only represented by a dozen or two prices in the billion price index.

Cell phones, laptops, netbooks, tablets, etc in contrast are probably hundreds if not thousands of entries.

What do we consume more of each year, directly and indirectly? Oil or semiconductors?

As usual that moron is using something to assert his desired view, as opposed to thinking critically and objectively.

+1.

Krugman hasn't had an objective thought in years, if not decades.
Like Art Laffer, his thought process is carefully filtered through a political lense.

[ggirod]

Re: Krugman: CPI is accurate

For a person at the poverty level, food and heating is a major issue and, probably being unemployed and without a vehicle and associated costs, fuel is not. Go a bit above that, and the automobile, fuel, and associated costs cause real and persistent pain. Often required for work, independent transportation can consume an non trivial percentage of income. Go above and the automobile is a necessity like nice clothes; required for work and lifestyle at that level of income, but not a major issue. Above that level, the costs for the second car may sometimes be an issue if debts accumulate. And, above that level, the richer person asks the chauffeur what the price of gas was at last fill-up. Having restated the obvious, I will now ask the obvious. Toward whom should the CPI be aimed? In fact, is there anything applicable like a CPI that can be used appropriately by anybody?

Frankly, I think CPI is really idiosyncratic and it is best estimated by the individual based on the previous years' expenditures. As for a measure of inflation, determine your reason for wanting to know and calculate it yourself. When you are done you will realize that any single calculation for CPI will be relatively meaningless for your situation and probably for the majority of your cohort's. Me? I get Social Security, so the latest CPI revision saved the trust fund (note I didn't say the government) considerable money because it reduced the CPI, which otherwise could result in benefit increases down the line. For your own CPI, here is an idiosyncratic example .... my heating cost rises more slowly than others' because my firewood comes partly from my own woods and partly from a supplier less than 1000 feet away, so I save the cost of delivery. You see, whenever gas/diesel prices rise firewood rises shortly thereafter. Trucks hauling big logs burn fuel so wood at the supplier's lot rises. And, if you have the bad fortune to live 25 or God Forbid 50 miles away, you will pay a lot more for wood, believe me.

Oh, you think that the CPI is somehow related to inflation? Gee, why not define inflation and then measure it based on the definition? Of course does that number mean anything to anybody else? Probably not. Bottom line ... inflation as experienced is the delta in prices you pay for everything you buy, preferably calculated year over year. YMMV.

[Thailandnotes]

Re: Krugman: CPI is accurate

Having restated the obvious, I will now ask the obvious. Toward whom should the CPI be aimed? In fact, is there anything applicable like a CPI that can be used appropriately by anybody?

Good question.

As for Billion Prices Index...

Rather than tracking prices of a gazillion things on the internet, I’d rather see data just on services…getting your teeth cleaned, your car tuned up, your two-pound package sent coast to coast etc.

Service inflation has traditionally been two or three points higher than goods inflation, and seems to present a better picture.

Come on, MIT!

[Starving Steve]

Re: Krugman: CPI is accurate

Cars easily last 10 or 15 years to-day, and they go 200,000 miles almost trouble-free. Tune-ups are not necessary, and oil changes can be every 10,000 miles. Tires last longer, like about 80,000 miles per set. So now-a-days, operating a car is almost free, except for depreciation, insurance, and gas.

I can remember the days when a car would last 50,000 miles, and then it was old. Five years, and your car was almost shot. Tires had to be bought every year. Oil changes were every 3,000 miles, and tune-ups were every 6,000 miles, including what was called, "greasing". And every 12,000 miles, cars used to need major servicing. Parts had to be replaced yearly because everything broke-down. Radios would burn-out tubes. Clocks never ran even when the car was new. Light-bulbs would burn-out, especially signal light-bulbs would burn-out. Anti-freeze had to be constantly changed, or topped-off. Wiper blades were replaced twice per year. Brakes had to be checked every 6,000 miles. Clutches would burn-out or chatter after two years. Under the car, there would be drips--- expensive drips, like brake hoses dripping, like transmission drips, like oil drips from the engine, like anti-freeze drips. There were also nightmares with rubber housings ( rubber boots ) for ball-joints because they would crack in winter, especially in Canada. Electrical problems would show-up in the car by 24,000 miles. Usually the radio would develop a short, first. If your radio would stop running when you went over a bump in the road, you had a short. A temporary fix for the short would be smashing your hand on top of the dashboard; then the radio would work for a while. Carburation was another head-ache, and carburators usually had to be re-built once or twice in a car's short life-span. Speedometre cables would break. Starters would burn-out, or be grounded improperly, or both. Windshield wiper squirters wouldn't work. Heads would warp in engines causing oil and anti-freeze to mix inside the engine block. Piston rings would go, compression would drop, and your engine would burn oil by 80,000 miles, if not sooner.... Oh yes, I remember.......Starving Steve tells all.

Should I re-call houses? The cheap houses of the past had newspapers for insulation. Roofs leaked. Even in new schools, roofs leaked so badly that pots had to be put out onto the floor to catch the winter rain in California. House bedrooms were the size of closets. Ceilings were low, and they made small rooms smaller, like being in a box. Ceilings had pin-holes in them, large enough so that you could see stars at night, if you looked closely. Wall furnaces provided heat in California, if they worked at all. (Usually, they did not work.) More than a few homes in every city in California caught fire every year because of their wall heaters exploding. Windows were drafty and they rattled. In home construction, carpenters would take sledge-hammers and smash wooden beams or wooden frames together, and then they would be nailed with gaps still showing in the joints. Features in the house? --- maybe a front door and a back door, bath tub, and toilet.

Starving Steve remembers the good old days.... The only good part was that silver dollars were daily money, everyone had them clanking in their pockets or purses. One silver dollar was a steak dinner in San Francisco on Van Ness Avenue in 1957.

The bottom-line is that cost-of-living comparisons year-to-year have to be calculated carefully, and noting changes in quality and utility of goods/services being compared.

[dcarrigg]

Re: Krugman: CPI is accurate

+1.

Krugman hasn't had an objective thought in years, if not decades.
Like Art Laffer, his thought process is carefully filtered through a political lense.

You know, I bet that the CPI would be an issue where Krugman and Laffer agreed too. When the talking heads on both sides agree - watch out - because invariably they're coming for your wallet.

[c1ue]

Re: Krugman: CPI is accurate

Interesting point....I would be keen to read other opinions as well about the makeup and accuracy/relevancy to average Joe 6 Pack.

I'm not looking for a conspiracy...I'm more of a "aligned interests" kind of guy

But if the BPP doesn't accurately measure inflation from the J6P perspective(but it used by the likes of Krugman to support lower than real inflation), is it at ris

I don't believe BPP is itself intended to be a propaganda play - the data it collects is of use to anyone interested in how prices change over time.

How said prices are then figured into an overall inflation figure - that is a separate issue. The point is that CPI vs. Shadowstats uses a much coarser set of price data; BPP should theoretically permit much more detailed data to be used an inputs.

The question then is how the data would be used. By market share? As a function of income? By demographic income quintile? By race, gender, age group? Some or all of the above? So far as I understand it, no one is anywhere near to accomplishing this step.

This isn't to say that BPP cannot be used by the unscrupulous.

[dcarrigg]

Re: Krugman: CPI is accurate

-deleted until there's more time-

[lektrode]

Re: Krugman: CPI is accurate

For all those anti-Krugmanites, where is the flaw in his thinking? Is Shadowstats wrong? What's the truth here?

well... if we, or shall i say, us joe6pack's - were flying around in uncle bens helicopters (like he/paul must be), and never actually setting foot on terra firma (the concrete of lower manhattan), why would the truth matter?

http://krugman.blogs.nytimes.com/201...-on-inflation/
Now, what about that 3.8 percent rise in the CPI over the past year? Well, if you look at the detail, you see that it’s very largely about commodity prices — oil mostly, but also to some extent food, and even the bulge in apparel prices is probably mainly about cotton.

And all that is history — it’s the bulge of late 2010 and early 2011 working its way through the pipeline.

And that commodity price boom didn’t persist; indeed, it’s gone into reverse.

One-Year Chart INTERACTIVE CHART
Value	303.15

uhh... but.... ummm... yeah, OK paul - since you asked...

after the price of all those 'trivial' items like food, fuel to drive 1000miles/week back n forth to their 'affordable' exurban mini-mcmansions (that cost less/month than a big city studio, on one o them high-finance, no-down, no-doc, option-adjustable easy-qualify mortages), their kids clothing, medical care, and a few 'luxuries' like the dentist or an occasional movie or sporting event that doesnt happen on an ipad or facebook - all of which has increased just enough over the past few years, even if only TEMPORARY (yeah, right) - and even if that was only _nominally_ just enough to - temporarily - price a typical working stiff out into the street, after your buddies there in SOHO 'madoff' with billions, whilst they krashed the economy and then all their credit cards maxed out just before they got laid off?

THE INDEX IS STILL ***HIGHER*** than it was before uncle ben started picking you up on the share-a-helicopter ride to work plan, and this is only 'temporary' - so... why is _that_ a problem?

right paul?

[lektrode]

Re: Krugman: CPI is accurate

well as krugman probably figures it, just because a bottle of moet has gone up, that doesnt mean that the price of budweiser has become unaffordable, one can still go for keystone or milwaukees best, eh?