2% is an arbitrary target. According to Volcker in his autobiography its has its origins in an offhand comment in a news story from then RBNZ governor during a bout with inflation that they would be happy if they brought inflation down to about 2%.
There's a lot of different ways to measure inflation. This is based on their own methodology and white paper (https://truflation.com/methodology/) which I have yet to review. It's almost certainly not "something to gain" but instead just different weights, different sources, different approach.
Theoretically isn’t the 2% target based on the BLS numbers for inflation? Thus, if we wanted to compare, the “Truflation target” might be more like 1% then? It’s weird to change the method but keep the arbitrary target.
The 2% target is rather arbitrary, and is independent of the measurement method. Both the target and all of the metrics are trying to capture the intuitive, handwavey notion of "a healthy economy".
So they don't put too much stress on that 2% number. If the number were at 1.9% or 2.1%, they'd assume it's all in the margin of error. If it gets below 1% or above 4% for a while, they apply some tools in the direction of 2%, but not trying to overshoot.
The government's goal is to use the same metric repeatedly. It doesn't matter whether it's higher or lower than some other metric. They only care about how it is compared to last month and last year, so they can make decisions about next month and next year.
They know that 6% is too high, so they'll keep trying to push inflation down. They'd do roughly the same if it were 4%; the margins of error are too large to distinguish.
If the number were 1% that would raise eyebrows, and you'd wonder if one metric or the other was a failure. Same if the number were 15%.
But no economist is worrying too much about somebody else going "... but it's really 4%". Especially if they don't have a track record for that number.
> We propose using the world’s vast data access, blockchain technology, and the enormous potential of decentralized systems and organizations to provide a developer solution to the inflation problem.
> Truflation is the first true US inflation index based on the independent data sources and metrics created by developers and crypto investors for developers and the crypto community.
> The US Truflation Index is available online, on-chain, via a Chainlink Oracle API for all the crypto products and projects that want to correct for the actual US inflation. The Truflation feed also provides daily updates as opposed to the monthly metrics reported by the US government. Truflation also allows transparent access to our underlying data and calculation methods.
It would be nice to get access to a small sample of the data points they're pulling, it's not immediately clear to me from their methodology what the data looks like or where the data is from.
Yeah, if anyone can find any information about the source of the data that would be useful. They can say they're transparent over and over again, but that doesn't necessarily make it so. Also, if they're selling their information as a commercial service, their bias has to be taken into account as well.
> “data sources and metrics created by developers and crypto investors”
I... if I had to name groups of people I would not trust to build data sources and metrics for broad economic measures, “developers” and “crypto investors” would both be very close to the top.
Seriously, why disparage people like that? I know some insanely talented developers who work in the crypto industry. Comments like this seem really against the spirit of HN.
They may be talented developers, but I don’t see what that has anything to do with their ability to understand complex economic systems. Entirely different skillsets.
But people in crypto tend to think they understand economics better than economists, so I think that the criticism of the article’s methodology is fair
No argument there, but OP's point was that the Truflation stats might give the Fed more wiggle room, since they're significantly lower than official CPI figures. Not if the Fed neither looks at nor gives any credence to the Truflation numbers. The Fed will continue to use lagging data and continue to make decisions that harm the economy.
(FWIW, the Fed does look at a variety of data sources, and the lag in housing numbers is well known to them. However, y'know who also uses lagging data when setting prices? Real estate agents. Comps usually go back a year or so, and anything sold in that time period is fair game. Y'know who else? Employees, when figuring out how much of an annual raise is fair. And so the Fed's decision-making process isn't strictly incorrect; if they don't hold rates high enough to actually see the inflation numbers go down, then the firms who set prices also aren't going to see the numbers go down when deciding how much to ask for.)
There is no way that matches reality, where does the person publishing such a chart even live? Do they buy eggs or pay rent?
Here is a real alternative - John William's shadow stats. He simply measures inflation as the government used to in the 80s and 70s, and surprise surprise its more like 10% or 14% - no phony "Owner's equivalent rent".
Things other than inflation can cause prices of specific XYZ to rise. Wasn't there some bird flu thing that constrained the egg supply? Rent and housing costs were going up before the pandemic. Add this to the existing inflation and it's bad, esp. for housing costs.
Ok, if you were the government and I asked you to measure rent increases - what would you do? Would you look at the cost of renting on average in a city and compare them to last years? Seems like the most obvious way...
Well, that is not how the government does it now. It currently uses a metric called "owner's equivalent rent". Where instead they call up people who own there houses and ask them how much they would rent it for. It is essentially a survey instead of hard data. This has the effect of hugely underestimating the value of housing - and thats just housing!
Lets talk about measuring food prices, well according to the US government you can have "substitutions". If you think measuring the price of steak is as easy as comparing the number between the years you'd be wrong again, because what they currently do is say "well people are really buying ground beef instead of steak so well use those prices instead". What's next substituting in dog food?
Thats not even to mention "hedonic adjustments"...
When the government relies on a statistic for policy it stops becoming a reliable statistic because the incentive is just too high to not manipulate the numbers
> Ok, if you were the government and I asked you to measure rent increases - what would you do? Would you look at the cost of renting on average in a city and compare them to last years? Seems like the most obvious way... Well, that is not how the government does it now.
Except, in fact, it actually is how they do the rent portion of CPI. (Well, its not city rent averages, they do same-unit rent changes and average those.)
> It currently uses a metric called "owner's equivalent rent".
No, OER is used for...OER. Rent is used for rent. They are two separate subcomponents of the housing component of CPI.
Even if that is true (which I am doubtful of), what is the merit of OER at all? Why use it if its A) not really what people are paying B) relying on people not in the market to guess what the going rate is and C) consistently underestimates actual rent.
I see no purpose for it besides the government liking the C) part...
Remember folks, inflation is "temporary" or, i mean, "transitory", or I mean, yes we have inflation, but its the COVID supply chain, OH oh sorry its Putin's fault. Yes lets stick with that...
> The merit of OER is that is a measure of the cost of using owned housing as housing instead of renting it out.
I don't follow - can you help me understand? To me there are two metrics that matter: the price of property, and the price to rent property.
Hypothetical: If 50% of the houses in the US were bought by older folks in the 1970 - 1990 (when housing prices were more propositional to income) and they generally don't plan to sell until 2030 - what does it matter what they would rent at today?
I just don't understand the logic here, and to the fact that they are included in the CPI at all means that the CPI is necessarily skewed when it comes to housing imho
I wonder if we all tabulated all our expenses in the most fine grained detail and calculated our own personal rates of inflation how meaningful it would be to have percentiles of our population to say things like 50% of citizens experience a personal inflation rate of x.xx%. That would be very fascinating. I'm almost there myself with some web order scraping I've been playing with. It's a lot of work but once I tackle another big vendor of mine I should be able to look at trends for given products over time that I regularly buy.
Sampling bias is going to be a real issue because there's going to be a strong incentive for people who think inflation is high, or is actively experiencing high inflation to participate. Also, if you're only tracking your expenses and not using a fixed basket, the index will end up including lifestyle inflation as well.
that's an excellent point. Clarify a bit the notion of the fixed basket, I'm thinking mostly of unit prices. I think that could get a bit fuzzy too because of practices like shrinkflation cluttering up the analysis. I think SKUs should actually be tied to fixed things like weight where applicable. I wonder what the rules are surrounding that, basically make it so that if you change the weight of a product you have to issue a new SKU. Might be a messy figure overall but still capable of shedding some insight people would be interested in I'd think.
By "fixed basket" I'm talking about the issue of people getting higher quality goods as their income increase, or buying more or less of something (eg. takeout) as their lifestyle changes.
yah those instances I would think would break a given "SKU run" if you will, it would have its run in an individual's life under a given time regime. It would phase in and it would phase out.
They are making flat assumptions and trying to recreate the charts from the government CPI, its also a reddit post and not a serious bit of research which examined their actual methods. It could all just be correlation - who knows? All I know is that prices are rising very fast, and I tend to not believe the government. Food pyramid, Iraq war, COVID numbers, etc.
I think the FED and our banking regulations are the true "bad economics" and if you trust that, just go ahead and leave your deposits in the bank or invest in 4% yielding bonds : P
> John William's shadow stats. He simply measures inflation as the government used to in the 80s and 70s, and surprise surprise its more like 10% or 14%
I don’t understand how anyone who knows about basic compound growth can take this seriously.
10% annual inflation from 1970 would mean prices have increased by 150X since 1970.
That would mean houses would have cost a couple thousand dollars and a dozen eggs would have been about four cents.
And that’s only using the lower 10% estimate, not the higher 14% estimate. It’s obviously not even close to reality.
It’s a quack website that can’t even hold up to the most basic scrutiny.
Basic stuff like eggs, noodles, rents align quite consistently with shadowstat. Even iPhone top model prices after 2010s seems to follow shadowstat numbers. The problem is China production. We enjoyed years of "deflations" pressure from "Made in China" and USD being hugely popular. Going forward with immense dedollarisation pressure (petrorubbleyuan) and rising cost of Made in China and lower quality from Made in India (India is currenrly in early stage of manufacturing curve so quality is not there yet) would increase our inflation. Even if it is not going Turkeye style, a persistent high inflation of 6-9% EVERY YEAR without strong USD demand will make shadowstat numbers more and more realistic than government's.
What exactly is "Truflation", and why should I give them any more credence than the hundreds/thousands of other independent economic analyses out there?
> Truflation is the first true US inflation index based on the independent data sources and metrics created by developers and crypto investors for developers and the crypto community.
I gave up before I could find details about their sources. Too many Blockchain Buzzwords to invest much time into reading more.
I tried to find the actual sources and failed, all I could see was:
> we are sourcing from as many daily price providers as we can while others updates once a week or once a month.
No information about who the price providers are, and the coverage these higher frequency data streams provide v. what they use traditional BLS inflation sources for.
This makes sense. It has been one years since the war started which was the leading cause of inflation.
Now with the first year passed, we compare today’s prices to after war prices a year ago, which were already high.
I’m expecting the rate go down further the next months.
EDIT: of course I’m not suggesting inflation started on the day bullets started flying. Things were heating up before with Russia slowing down exports strategically well ahead of time and tensions were on the rise for some time.
That reasoning makes no sense at all to me: interest rates are about to be lowered again, to save the banking system again. By flooding it with new money from the FED. Again.
How is that going to make inflation go down?
You ain't seen nothing yet. Hyperinflation is coming.
The war is a factor but a lot smaller than people seem to think it is.
I think it was the OECD showing a larger part in the UK, France and such is demand driven, monetary policy and such with supply chain issues also being a factor but faaar from entirely something we can chalk up to the war.
Keep in mind Europe is more affected by the war's disruption, energy issues, etc
It is very difficult to measure "true" inflation when most of it is hidden in decline of quality of services or shirnkflation (the latter is a bit easier to track).
For example, the restaurant who still offer you the same price for the meal but now clean the toilets and cutlery 80% less frequently than they did two years ago (to save on dishwasher energy cost, or recruiting 20% less cleaner hours). Or the school that charges you the same fee although they have quietly increased the student to teacher ratio.
I am wondering what is the current stat of the art to capture such hidden inflation, I guess you can track reviews to see if there is an uptick in negative reviews but then this is hard to translate quantitatively into how much it is contributing to inflation.
Also, it's not active for all categories. In the restaurant example from the parent post, it wouldn't be counted because that category has no quality adjustment applied.
Pre-pandemic I was considering getting this[0] gateleg table from IKEA, it was $199.
I passed on it, then the pandemic hit.
In 2021 I decided I wanted to get the table and it was permanently out of stock because Pandemic, but still $199 on the site.
Because of its unavailability I ended up polling the site periodically, noting the price. Consequently this object became one of my reference points for pricing throughout the pandemic. As the price steadily rose, friends I'd mention it to would call out the lumber industry problems as why it's going up.
Well, as far as I can tell we're well past those lumber issues, and the price has only gone up further since...
> Your reference point on inflation is one quirky piece of furniture sold by a single retailer?
... "one of" ...
"The IKEA Norden gateleg table has been one of IKEA’s best sellers for a while, and it’s for good reason." [0]
I fail to see how this is a "quirky piece of furniture". Judging by the frequency they appear on CL and how many of my personal contacts either had one or knew family/friends having one, I can believe the above quote regarding its best-seller status. They're quite common.
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[ 38.9 ms ] story [ 414 ms ] threadSo they don't put too much stress on that 2% number. If the number were at 1.9% or 2.1%, they'd assume it's all in the margin of error. If it gets below 1% or above 4% for a while, they apply some tools in the direction of 2%, but not trying to overshoot.
[1] https://www.stlouisfed.org/open-vault/2020/january/what-is-p...
They know that 6% is too high, so they'll keep trying to push inflation down. They'd do roughly the same if it were 4%; the margins of error are too large to distinguish.
If the number were 1% that would raise eyebrows, and you'd wonder if one metric or the other was a failure. Same if the number were 15%.
But no economist is worrying too much about somebody else going "... but it's really 4%". Especially if they don't have a track record for that number.
> We propose using the world’s vast data access, blockchain technology, and the enormous potential of decentralized systems and organizations to provide a developer solution to the inflation problem.
> Truflation is the first true US inflation index based on the independent data sources and metrics created by developers and crypto investors for developers and the crypto community.
> The US Truflation Index is available online, on-chain, via a Chainlink Oracle API for all the crypto products and projects that want to correct for the actual US inflation. The Truflation feed also provides daily updates as opposed to the monthly metrics reported by the US government. Truflation also allows transparent access to our underlying data and calculation methods.
It would be nice to get access to a small sample of the data points they're pulling, it's not immediately clear to me from their methodology what the data looks like or where the data is from.
https://whitepaper.truflation.com/background/what-is-truflat...
I... if I had to name groups of people I would not trust to build data sources and metrics for broad economic measures, “developers” and “crypto investors” would both be very close to the top.
Reminder: https://news.ycombinator.com/newsguidelines.html
But people in crypto tend to think they understand economics better than economists, so I think that the criticism of the article’s methodology is fair
If we can weather these last few blips, we might be back to smooth sailing soon. The economy is buzzing along by all other measures.
If you want to predict Fed movements, your best bet is probably the Core PCE:
https://www.bea.gov/data/personal-consumption-expenditures-p...
Truflation says the housing data the fed uses is 9 months behind them.
(FWIW, the Fed does look at a variety of data sources, and the lag in housing numbers is well known to them. However, y'know who also uses lagging data when setting prices? Real estate agents. Comps usually go back a year or so, and anything sold in that time period is fair game. Y'know who else? Employees, when figuring out how much of an annual raise is fair. And so the Fed's decision-making process isn't strictly incorrect; if they don't hold rates high enough to actually see the inflation numbers go down, then the firms who set prices also aren't going to see the numbers go down when deciding how much to ask for.)
Here is a real alternative - John William's shadow stats. He simply measures inflation as the government used to in the 80s and 70s, and surprise surprise its more like 10% or 14% - no phony "Owner's equivalent rent".
http://www.shadowstats.com/alternate_data/inflation-charts
The specific reasons sum up to cause inflation, not the other way round.
Well, that is not how the government does it now. It currently uses a metric called "owner's equivalent rent". Where instead they call up people who own there houses and ask them how much they would rent it for. It is essentially a survey instead of hard data. This has the effect of hugely underestimating the value of housing - and thats just housing!
Lets talk about measuring food prices, well according to the US government you can have "substitutions". If you think measuring the price of steak is as easy as comparing the number between the years you'd be wrong again, because what they currently do is say "well people are really buying ground beef instead of steak so well use those prices instead". What's next substituting in dog food?
Thats not even to mention "hedonic adjustments"...
When the government relies on a statistic for policy it stops becoming a reliable statistic because the incentive is just too high to not manipulate the numbers
https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...
Except, in fact, it actually is how they do the rent portion of CPI. (Well, its not city rent averages, they do same-unit rent changes and average those.)
> It currently uses a metric called "owner's equivalent rent".
No, OER is used for...OER. Rent is used for rent. They are two separate subcomponents of the housing component of CPI.
More complete description:
https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...
I see no purpose for it besides the government liking the C) part...
Remember folks, inflation is "temporary" or, i mean, "transitory", or I mean, yes we have inflation, but its the COVID supply chain, OH oh sorry its Putin's fault. Yes lets stick with that...
The merit of OER is that is a measure of the cost of using owned housing as housing instead of renting it out.
> Why use it if its A) not really what people are paying
It is a measure of what people are paying, as an opportunity cost.
> B) relying on people not in the market to guess what the going rate is
Potentially a legitimate concern.
> C) consistently underestimates actual rent.
Its not trying to measure actual rent and is not consistently below actual rent (which, again, is tracked separately.)
I don't follow - can you help me understand? To me there are two metrics that matter: the price of property, and the price to rent property.
Hypothetical: If 50% of the houses in the US were bought by older folks in the 1970 - 1990 (when housing prices were more propositional to income) and they generally don't plan to sell until 2030 - what does it matter what they would rent at today?
I just don't understand the logic here, and to the fact that they are included in the CPI at all means that the CPI is necessarily skewed when it comes to housing imho
Shadow stats is comically bad economics.
I think the FED and our banking regulations are the true "bad economics" and if you trust that, just go ahead and leave your deposits in the bank or invest in 4% yielding bonds : P
I don’t understand how anyone who knows about basic compound growth can take this seriously.
10% annual inflation from 1970 would mean prices have increased by 150X since 1970.
That would mean houses would have cost a couple thousand dollars and a dozen eggs would have been about four cents.
And that’s only using the lower 10% estimate, not the higher 14% estimate. It’s obviously not even close to reality.
It’s a quack website that can’t even hold up to the most basic scrutiny.
"Inflation: The Biggest Scam In The History Of Mankind" https://youtu.be/iFDe5kUUyT0
Is there anything incorrect in that presentation? John William's shadowstats is mentioned.
I gave up before I could find details about their sources. Too many Blockchain Buzzwords to invest much time into reading more.
> we are sourcing from as many daily price providers as we can while others updates once a week or once a month.
No information about who the price providers are, and the coverage these higher frequency data streams provide v. what they use traditional BLS inflation sources for.
Now with the first year passed, we compare today’s prices to after war prices a year ago, which were already high.
I’m expecting the rate go down further the next months.
EDIT: of course I’m not suggesting inflation started on the day bullets started flying. Things were heating up before with Russia slowing down exports strategically well ahead of time and tensions were on the rise for some time.
How is that going to make inflation go down?
You ain't seen nothing yet. Hyperinflation is coming.
Inflation was 7.5% and trending upwards a month before the invasion, so your supposition is incorrect [0].
[0] https://www.bls.gov/regions/mid-atlantic/data/consumerpricei...
For example, the restaurant who still offer you the same price for the meal but now clean the toilets and cutlery 80% less frequently than they did two years ago (to save on dishwasher energy cost, or recruiting 20% less cleaner hours). Or the school that charges you the same fee although they have quietly increased the student to teacher ratio.
I am wondering what is the current stat of the art to capture such hidden inflation, I guess you can track reviews to see if there is an uptick in negative reviews but then this is hard to translate quantitatively into how much it is contributing to inflation.
The Fed's measure of inflation is supposed to include this.
Also, it's not active for all categories. In the restaurant example from the parent post, it wouldn't be counted because that category has no quality adjustment applied.
https://www.bls.gov/cpi/quality-adjustment/
I passed on it, then the pandemic hit.
In 2021 I decided I wanted to get the table and it was permanently out of stock because Pandemic, but still $199 on the site.
Because of its unavailability I ended up polling the site periodically, noting the price. Consequently this object became one of my reference points for pricing throughout the pandemic. As the price steadily rose, friends I'd mention it to would call out the lumber industry problems as why it's going up.
Well, as far as I can tell we're well past those lumber issues, and the price has only gone up further since...
+75.37%[0] https://www.ikea.com/us/en/p/norden-gateleg-table-birch-9042...
People were staying home more and spending less on going out. Budgets went toward improving homes.
Furniture was out of stock everywhere. Companies raised prices but demand continued, so they kept raising.
... "one of" ...
"The IKEA Norden gateleg table has been one of IKEA’s best sellers for a while, and it’s for good reason." [0]
I fail to see how this is a "quirky piece of furniture". Judging by the frequency they appear on CL and how many of my personal contacts either had one or knew family/friends having one, I can believe the above quote regarding its best-seller status. They're quite common.
[0] https://www.houszed.com/ikea-norden-gateleg-table-hack/
Even the official rate is vastly underestimated. 4% is a joke.