In some markets, sure. However if you look at median home prices from 1980 to today and factor in interest rates (which are much lower today) and median income then you see that homes are about the same as they were in terms of monthly payment. With the upside today that early in your mortgage more of your payment goes to principal.
If interest rates were to go to 8% overnight, besides crashing the global economy you’d see home prices cut in half. Homes are priced at what people that want to live there are able to pay per month. As interest rates fall home prices rise. Like I said certain markets have outpaced but their median incomes have outpaced as well. This makes sense as the upper middle class has grown a lot the last 40 years to make up much more of the population by percentage (there’s a lot more high paying professional jobs today) and people like to live among people of similar financial classes for obvious reasons.
There is a housing component to the CPI. It uses rents instead of home prices and makes some tradeoffs, but it seems fair to me overall. If you live in SF or NYC or similar cities it can seem that CPI underestimates inflation due to high rents/home price, but it is a national level metric, so that's somewhat expected.
I think it is more class related. As income/wealth divide grows, the cost to move up to the next socioeconomic class grows. If you are expecting to have jumped up the ranks into a certain neighborhood or school district, a certain city, vacation to certain destinations, then those will have become further out of reach.
It might be accurate to say the cost of your dreams or goals is increasing faster than official statistics.
There's a lot to be said about how measurements of inflation could be improved, but this kind of blog is regrettably not one of the useful ones. It has been a known quantity for a long time - the wiki talk page is a good start:
I would like to read a point-by-point critique of Shadowstats but have yet to come across one. The wikis you've listed are more muckraking in nature than a technical rebuttal.
A poorly done critique increases rather than diminishes the credibility of the target.
Yep - there are certainly some bubbles of costs that have increased substantially, but think about the tech in your pocket (1995 was the era of $500/GB hard drives - https://external-preview.redd.it/-ArYBjQcq6Go7QbkY5-Os9FFOtZ... and terrible $5,000 Gateway laptops) or the car in your driveway.
A new Civic costs something like 80% more than a 1995 one and is a remarkably nicer car. Gas prices are up something like 200% since then (but basically unchanged since the mid 2000s), but cars are far more fuel efficient so even that impact is blunted.. groceries, appliances, furniture, restaurants, entertainment...
Yeah, the vast majority of millennials and later generations can’t afford a place of their own and are destined to be rent slaves for years, but think about the amount of Tik Tok videos you have in your pocket!
A point by point critique is the wrong approach when dealing with this sort of nonsense, because only cranks fall for the shadow stats shtick.
And candidly, if somebody is stupid enough to look at a claim of 10%YoY inflation for 2 decades and think it’s true… that person will not be persuaded by any type of fact. They’re either not capable of or not interested in learning the truth.
As such, it’s best to just write off anybody dumb enough to fall into the nonsense, don’t litigate the little lies, and just show that the big picture is obviously wrong.
Yes, any inflation measure is imperfect, but I'm not sure how it could even theoretically be perfect given changing technology. How do you properly measure substitution effects that the iPhone has had relative to everything it imperfectly replaced; or the way services have replaced ownership in some areas of life? Given the complexity involved, the current measure seems to do the job well enough.
As a side note, this mistrust of the CPI is something Eric Weinstein loves to bring up, too, with the same narrative about CPI being designed by politicians. After watching him try to convince economists [0][1] of the points made in this article (and avoiding questions that get specific or complex), I'm unconvinced I need to care.
The video is a tad confusing. He has this idea that methods from physics and calculus should be ported over to economics to tackle unsolved problems like inflation, and he doesn't clearly delineate the two when speaking. (The economics portion starts about 16 minutes in.)
I realized though that I didn't link to the best video to convey my point. Here is a more specific talk on inflation given by him and his wife to a room full of economists: https://www.youtube.com/watch?v=zwiHv7xVQ_c
Notably, the economists in the room point out that the inflation problem has already been tackled from a theoretical angle which does incorporate calculus. However, they say the resulting idea (the Divisia index) isn't practical for nation-level inflation measurements.
This distrust of “politicians’ and public institutions (plus ‘the media”) is half of what’s eating away democracies all over the world. Actual corruption goes unpunished because “they are all corrupt” is easily turned from a cynical accusation into an excuse. Bitcoin is turning coal into flooding because people are afraid of the monetary crises of the 1920s (hyperinflation) and spooked by even the silliest conspiracy myths (“the FED is a private bank”).
So, yes, measures of inflation aren’t perfect. But it’s “not perfect” in the most trivial sense: even some well-chosen single item (Big Mac?) gets you a measure of inflation that will be close enough most of the time. The actual basket improves it from maybe 90 % perfect to 98 %.
Very few people are buying cryptocurrencies over fears of a USD monetary crisis. That's a fringe group. Instead must buyers are speculators trading on momentum and hoping to get rich quick before the bubble bursts. There are also a bunch of people using it to conduct illegal transactions (drugs, weapons, ransoms) or evade capital controls in repressive countries (China, Venezuela).
There is also the old debate between monetary inflation and price inflation. Monetary inflation being the fact of just printing money and used to be what you refer to in economics books when you just say “inflation”.
Yes that term does seem to get commingled with different meanings. Increasing money supply vs increasing prices seem to be the main ones.
The former usually results in the latter, but not always, and sometimes with lag. And sometimes prices can rise without an increase in the money supply, for other reasons - a decrease in supply, an increase in demand due to some other factor than monetary inflation, etc.
And that's not to mention the different measurements of money - M0, M1, etc. - as subsets of monetary inflation.
I wish economists and journalists would better differentiate by using "monetary inflation", "price inflation", and/or other qualifiers for exactly which one they're talking about.
- Studies on CPI indicate that CPI is overestimated, not underestimated.
- It's known fact that inflation does not match the common experience. It's solely because people remember easier large price increases and can't weight them correctly.
- There are other measures but they have even worse problems. For policy issues core CPI is better.
I think this is generally right, and if "real" CPI was much higher than calculated you would see it eventually since the difference between real and calculated would be compounded over time.
However, because CPI is done at the national level while people typically live in one area, it is possible that HN readers in SF or wherever experience higher inflation than the CPI calculates. Certainly their rents have gone up much more than someone's in Kansas City.
When you see news that say rent prices go trough roof, it usually means new leases.
If new leases go up 10% and only 5% of renters sign a new lease, that's only 0.5% increase to rent prices.
> However, because CPI is done at the national level while people typically live in one area, it is possible that HN readers in SF or wherever experience higher inflation than the CPI calculates.
It could even be that most people experience above-average inflation, because there are places with relatively low population but very low, relative, inflation dragging the averages down.
If that is the case, it might be possible to alter how geographic aggregation works to calculate a CPI-for-median-consumer that better captures the common experience. This might be better for some policy purposes, as well.
Modern calculations of inflation use the geometric mean of price increases, while previously it was the arithmetic mean. The reason is exactly the geometric-arithmetic mean inequality [1]. This is the largest theft ever made, and no-one knows or wants to know about it.
If the goal of cpi is to reflect what consumers feel the inflation rate is regardless of what any consistent measurement scheme says, the BLS could get rid of the pesky measurement nonsense altogether just take an annual survey. Think of the cost savings!
Food prices are hard to notice because often instead of raising the price they make the package smaller. So on top of your 50% price increase you might get slightly less food for the dollar.
I find it interesting that the PlayStation stayed rather flat, but the iPhone went up so much over time.
8-10% inflation does not sound like it's true, but it's certainly higher than the CPI suggests.
I understand that, but if a container of food shrinks by an ounce or two over time most won't buy an entire extra one to make up the difference.
If you could buy all food by weight this would be easier to notice and make an apples to apples comparison. Hat's off to the parent comment if they even tracked it down to the exact amount of food and kept it consistent for years.
Most people set a budget of $X dollars of food that is rather generous and if they get slightly less food they don't notice because they are already buying an excess of calories most of the time.
Allow me clarify, I think people in general consume more calories than they did in the past. They are just 'wasting' less food.
Most people when buying food budget money, not calories. So if food producers shave off a few ounces over time you won't notice because you already buy a surplus of food to begin with. The surplus just shrinks ever so slightly on the consumers end. That unused 2 ounces at the bottom of the mayo jar is now 1. That pack of fruit snacks has 1 less in the pouch, etc.
It usually takes a dramatic sudden change for most consumers to notice "shrinkflation".
I have noticed that when somebody says "so you are saying/suggesting X," X was never actually said/suggested. A frustrating thing to encounter in a discussion. Sorry if I was unclear.
As I mentioned in the sister comment I do indeed track unit prices for things like meat, dairy, and produce.
My total monthly expenses have increased by roughly 50-100% since 2006, but that's also because I now earn more, buy more expensive things like steak and good cheese, and am more physically active so eat larger quantities.
I actually think that I overstated food price increase marginally. Many things I buy are the same price they were 15 years ago.
I am indeed referring to total monthly food expenses, and also individual prices for things I track the unit cost of, like meat, dairy, and produce.
To break it down further, best unit prices from 2006 to present:
Lean ground beef: $3/lb -> $4/lb
Chicken breast: $26/4kg -> $26/4kg
Pork tenderloins: $2/lb -> $2/lb
Milk: $4/gal -> $4.50/gal
Apples: $0.69/lb -> $0.99/lb
Green Peppers: $0.99/lb -> $1.49/lb
I'll stop there but you get the idea. I've noticed pasta boxes shrinking from 500g to 454g at some point in the last 10 years, as did bacon going from 454g to 375g. But those are fairly isolated changes and bacon prices have also tripled in that time period for some reason.
CPI tries to take into account changes in quality and quantity.
If new iPhone has better quality than old iPhone so that price increase of CPI is not the difference of iPhone prices. You are paying more to get more.
What metrics would you use to determine if an iPhone is better quality than older models?
Quality sounds rather subjective and they did not always calculate CPI with taking that into account. Seems like they don't share the criteria they use to determine 'quality'.
They added the quality weight to make the overall numbers look lower. I have zero idea if that distorts it, or makes it more correct.
"Hedonic regression model" sounds fancy and all, but look at their charts just filled with arbitrary numbers accessing various features. Funny to see how they weighted various, now failed, technologies/features.
They share the information and document it. Please don't succumb to some conspiratory thinking.
They can't take everything into account and hedonic adjustments is used for only small percentage of products. That's one reason why it overestimates inflation.
I don't think the folks that make the CPI are part of some vast conspiracy. I just question their methods. Like all numbers from the government, politics are involved.
You can believe they are (slightly) wrong and not be a "conspiracy theorist/thinker" at the same time.
For something like an iPhone you can just use the price that consumers are willing to pay to determine if it's better than older models. When a new model is introduced the retailers still have the old model in stock and continue selling it. If consumers are willing to pay more for the new model then it has higher value to them.
Thank you; this guy is an obvious grifter, and it saddens me how many people know math in theory, but still fall for the nonsense.
He’s realized that there are people who will pay $175/yr for a newsletter that confirms their priors (inflation is secretly out of control), and that these people will keep buying and recommending the newsletter even after _decades_ of it being obviously wrong.
I mean, on the one hand, good for him. He realized there’s a market of people who want to be lied to, and he lies to them for a fee. But it’s nonsensical for it to be posted anywhere serious.
Rent is a valid part of inflation but house prices are not. Real estate is an investment, not an expense. It doesn't factor into inflation for the same reason that stocks aren't a factor. Instead for homeowners the BLS calculates owner's equivalent rent.
> Anecdotal evidence and occasional surveys have indicated that the general public believes inflation is running well above official reporting, and that public perceptions tend to mirror the inflation experience that once was reflected in the government’s formal CPI reporting.
... but one might reasonably suppose that part of the public's supposed perception of inflation influenced not just by actual prices but by the way we talk about prices and inflation? I.e. some people that keep talking about inflation being "actually" higher than measured contribute to people believing that inflation is higher.
62 comments
[ 3.0 ms ] story [ 122 ms ] threadIf interest rates were to go to 8% overnight, besides crashing the global economy you’d see home prices cut in half. Homes are priced at what people that want to live there are able to pay per month. As interest rates fall home prices rise. Like I said certain markets have outpaced but their median incomes have outpaced as well. This makes sense as the upper middle class has grown a lot the last 40 years to make up much more of the population by percentage (there’s a lot more high paying professional jobs today) and people like to live among people of similar financial classes for obvious reasons.
Only shelter part of housing is in the CPI.
It might be accurate to say the cost of your dreams or goals is increasing faster than official statistics.
https://en.m.wikipedia.org/wiki/Talk:Shadowstats.com#Shadows...
Also, RationalWiki:
https://rationalwiki.org/wiki/Shadow_Government_Statistics
A poorly done critique increases rather than diminishes the credibility of the target.
https://www.washingtonpost.com/news/wonk/wp/2014/07/17/the-i...
What in your life costs 500%+ more than it did in 1995 for the same product? No need for in-depth debunking when it's self-evidently nonsense.
Reflexively, I thought of housing (Seattle area), but apparently that has only increased by 270% since 1995.[1]
[1]: https://fred.stlouisfed.org/series/ATNHPIUS42644Q
A new Civic costs something like 80% more than a 1995 one and is a remarkably nicer car. Gas prices are up something like 200% since then (but basically unchanged since the mid 2000s), but cars are far more fuel efficient so even that impact is blunted.. groceries, appliances, furniture, restaurants, entertainment...
And candidly, if somebody is stupid enough to look at a claim of 10%YoY inflation for 2 decades and think it’s true… that person will not be persuaded by any type of fact. They’re either not capable of or not interested in learning the truth.
As such, it’s best to just write off anybody dumb enough to fall into the nonsense, don’t litigate the little lies, and just show that the big picture is obviously wrong.
http://www.shadowstats.com/subscriptions
https://web.archive.org/web/20080512223437/http://www.shadow...
As a side note, this mistrust of the CPI is something Eric Weinstein loves to bring up, too, with the same narrative about CPI being designed by politicians. After watching him try to convince economists [0][1] of the points made in this article (and avoiding questions that get specific or complex), I'm unconvinced I need to care.
[Edited to add second, more relevant video]
[0]: https://www.youtube.com/watch?v=h5gnATQMtPg
[1]: https://www.youtube.com/watch?v=zwiHv7xVQ_c
I realized though that I didn't link to the best video to convey my point. Here is a more specific talk on inflation given by him and his wife to a room full of economists: https://www.youtube.com/watch?v=zwiHv7xVQ_c
Notably, the economists in the room point out that the inflation problem has already been tackled from a theoretical angle which does incorporate calculus. However, they say the resulting idea (the Divisia index) isn't practical for nation-level inflation measurements.
So, yes, measures of inflation aren’t perfect. But it’s “not perfect” in the most trivial sense: even some well-chosen single item (Big Mac?) gets you a measure of inflation that will be close enough most of the time. The actual basket improves it from maybe 90 % perfect to 98 %.
You should join some of the Telegram groups. My experience has been generally the opposite.
Checkout the channel for LN support group PlebNet or the PirateChain channel for example.
The former usually results in the latter, but not always, and sometimes with lag. And sometimes prices can rise without an increase in the money supply, for other reasons - a decrease in supply, an increase in demand due to some other factor than monetary inflation, etc.
And that's not to mention the different measurements of money - M0, M1, etc. - as subsets of monetary inflation.
I wish economists and journalists would better differentiate by using "monetary inflation", "price inflation", and/or other qualifiers for exactly which one they're talking about.
- Studies on CPI indicate that CPI is overestimated, not underestimated.
- It's known fact that inflation does not match the common experience. It's solely because people remember easier large price increases and can't weight them correctly.
- There are other measures but they have even worse problems. For policy issues core CPI is better.
However, because CPI is done at the national level while people typically live in one area, it is possible that HN readers in SF or wherever experience higher inflation than the CPI calculates. Certainly their rents have gone up much more than someone's in Kansas City.
It could even be that most people experience above-average inflation, because there are places with relatively low population but very low, relative, inflation dragging the averages down.
If that is the case, it might be possible to alter how geographic aggregation works to calculate a CPI-for-median-consumer that better captures the common experience. This might be better for some policy purposes, as well.
[1] https://en.wikipedia.org/wiki/Inequality_of_arithmetic_and_g...
Anecdotally, having tracked all my expenses since becoming an adult in 2006, in my area I have noticed:
* Food prices 1-1.5x (unchanged to 50% higher or so).
* Rent prices ~2x.
* House prices ~4x.
* Gas prices 1.5x
* Transit prices 1.5x
* Alcohol prices 1-1.2x
* Entertainment prices 1-1.5x
* Newest iPhone 1.8x
* Newest Playstation 1x
The housing crisis stands out as an obvious outlier, but most of this is consistent with inflation in the 2-3% range.
I find it interesting that the PlayStation stayed rather flat, but the iPhone went up so much over time.
8-10% inflation does not sound like it's true, but it's certainly higher than the CPI suggests.
If you could buy all food by weight this would be easier to notice and make an apples to apples comparison. Hat's off to the parent comment if they even tracked it down to the exact amount of food and kept it consistent for years.
Most people set a budget of $X dollars of food that is rather generous and if they get slightly less food they don't notice because they are already buying an excess of calories most of the time.
Most people when buying food budget money, not calories. So if food producers shave off a few ounces over time you won't notice because you already buy a surplus of food to begin with. The surplus just shrinks ever so slightly on the consumers end. That unused 2 ounces at the bottom of the mayo jar is now 1. That pack of fruit snacks has 1 less in the pouch, etc.
It usually takes a dramatic sudden change for most consumers to notice "shrinkflation".
I have noticed that when somebody says "so you are saying/suggesting X," X was never actually said/suggested. A frustrating thing to encounter in a discussion. Sorry if I was unclear.
My total monthly expenses have increased by roughly 50-100% since 2006, but that's also because I now earn more, buy more expensive things like steak and good cheese, and am more physically active so eat larger quantities.
I actually think that I overstated food price increase marginally. Many things I buy are the same price they were 15 years ago.
If anything the only huge inflation I ever see is not in consumer goods, but in appreciating assets.
To break it down further, best unit prices from 2006 to present:
Lean ground beef: $3/lb -> $4/lb
Chicken breast: $26/4kg -> $26/4kg
Pork tenderloins: $2/lb -> $2/lb
Milk: $4/gal -> $4.50/gal
Apples: $0.69/lb -> $0.99/lb
Green Peppers: $0.99/lb -> $1.49/lb
I'll stop there but you get the idea. I've noticed pasta boxes shrinking from 500g to 454g at some point in the last 10 years, as did bacon going from 454g to 375g. But those are fairly isolated changes and bacon prices have also tripled in that time period for some reason.
I've never seen a 500g box of pasta in my entire life.
I've can't remember when apples were cheap, even the cheapest varieties.
Milk is priced by subsidied and loss leaders, so it isn't practical for tracking inflation.
If new iPhone has better quality than old iPhone so that price increase of CPI is not the difference of iPhone prices. You are paying more to get more.
Quality sounds rather subjective and they did not always calculate CPI with taking that into account. Seems like they don't share the criteria they use to determine 'quality'.
They added the quality weight to make the overall numbers look lower. I have zero idea if that distorts it, or makes it more correct.
I found it by googling "CPI quality adjustment".
https://www.bls.gov/cpi/quality-adjustment/questions-and-ans...
They can't take everything into account and hedonic adjustments is used for only small percentage of products. That's one reason why it overestimates inflation.
You can believe they are (slightly) wrong and not be a "conspiracy theorist/thinker" at the same time.
Not really. Details of how CPI is calculated has never been political issue.
He’s realized that there are people who will pay $175/yr for a newsletter that confirms their priors (inflation is secretly out of control), and that these people will keep buying and recommending the newsletter even after _decades_ of it being obviously wrong.
I mean, on the one hand, good for him. He realized there’s a market of people who want to be lied to, and he lies to them for a fee. But it’s nonsensical for it to be posted anywhere serious.
https://fred.stlouisfed.org/series/CUSR0000SEHC
... but one might reasonably suppose that part of the public's supposed perception of inflation influenced not just by actual prices but by the way we talk about prices and inflation? I.e. some people that keep talking about inflation being "actually" higher than measured contribute to people believing that inflation is higher.