Using inflation tracking methods from 80s and 90s, inflation would be ~10%

http://www.shadowstats.com/alternate_data/inflation-charts

51 32 5 years ago

N1H1L• 5 years ago

Interesting point, but then as per the methods inflation has been ~10% since 2001, except for the a dip because of the great recession.

The inflation, even by this measure, has then been immune to fiscal stimulus.

wyldfire• 5 years ago

Metrics for inflation are costs and wages, right? If mean wages stay the same but the median wage goes down, how does inflation change?

If the buying power of wages goes down in terms of goods/services that can be purchased, how does inflation change?

Seems like the huge QE hasn't caused interest rates to increase. But is that independent of wages/cost of necessities?

BelenusMordred• 5 years ago

It's a weighted basket of goods and services.

In Australia we removed housing purchase costs from the inflation basket in 1998.

To no ones surprise 20 years later it has ballooned wildly out of control over that timeframe.

If you remove something from the basket, you make every person who wants to buy that item/service non-existent in the eyes of a central bank.

Yet many seem to defend how inflation is decided and changed on a whim. Combine that with the magic number of 2-3% inflation being good, with any other number being bad, and it's clear that the current paradigm which was created in a very different world 60 years ago is a complete fucking mess.

atq2119• 5 years ago

Did you mix up inflation and interest rates in your last paragraph? The whole point of QE is to ensure interest rates stay low.

PragmaticPulp2• 5 years ago

10% inflation for 20 years would mean that 2021 prices are 6.7X higher than 2001 prices.

The author doesn’t show their calculations, but the claims don’t add up.

cryptonector2• 5 years ago

In 1980 the CPI included asset prices, did it not?

PragmaticPulp2• 5 years ago

Does anyone have a better reference for how this is calculated?

I’m struggling to trust a paid newsletter called “Shadow Government Stats” that doesn’t include any references to how this is calculated or what data they’re using as a source. The text hints that it’s using previous official methodologies but the graphs are labeled with things like “ShadowStats Alternative”.

Also, the graphs suggest that inflation has been hovering around 10% and peaking up around 15% since around year 2000 and continuing for two decades. 10% compounded annually for 20 straight years would make everything 6.73X more expensive than it was in 2001, which is clearly not true.

Something is very wrong with these statistics. I think the author is pandering to popular inflation fears in order to get more paid subscribers.

jjoonathan2• 5 years ago

The 1990 methodology looks like "CPI-U + 4%" and the 1980 methodology looks like "CPI-U + .25%*(year-1984)." If we assume for a second that there is a methodology beyond hand-waving those offsets into graphs in order to obtain money from people like my parents, we would probably be looking for basket items with constant, high price increases over the last 40 years and (log-)linear escalating price increases over the last 40 years. Something to do with health care and education respectively, maybe?

That's almost certainly giving Shadow Stats more benefit of the doubt than they deserve, but after the manufacturing figure debacle (see below) I'm open to the idea of spelunking into these calculations and debating the merits of various choices they make.

https://qz.com/1269172/the-epic-mistake-about-manufacturing-...

(Summary: "American Manufacturing is doing better than ever" figures were obtained by including Intel in the basket and multiplying up their revenue using Moore's law as a hedonic adjustment.)

this_user• 5 years ago

It's the latter, of course. Because if these numbers were actually correct, the market would have figured that out by now, and it would be reflected in the level of interest rates. Yet, it is not. So either people are losing money by lending at rates that are well below the level of inflation, and everyone is too stupid to have noticed that over the last 30 years or this article is nonsense.

ljhsiung• 5 years ago

Two economists are walking down the street. One sees a $100 bill on the ground and says, "Hey, isn't that a $100 bill?" The other laughs-- "Of course not. If it was, someone else would have taken it by now."

While I agree with you in this specific case, this joke always pops into my head whenever "efficient markets" are brought up.

nicklecompte• 5 years ago

The author did link to a much more detailed explanation: http://www.shadowstats.com/article/no-438-public-comment-on-...

I skimmed it, it’s a lot to take in. In general it seems like the author doesn’t explore deeply why the academics wanted to change the inflation measure and takes for granted that it was simply ivory tower twiddling combined with political machinations. I feel like I am not getting a full picture. But I haven’t understood the author’s thesis in enough detail to comment rigorously.

Subjectively my personal experience over the last 20 years seems more in line with government stats than the author’s shadow stats: generally low inflation with a lot of volatility in certain commodities, and upward pressure in housing, combined with stagnant wages. Inflation at 10% over the last 20 years doesn’t really pass the sniff test considering my memory of prices in 2000.

zionic• 5 years ago

Not quite. Remember that if you held the true value of a currency flat with increasing automation and technological efficiency you should get more for the same amount of money. Prices staying flat over time in the face of efficiency gains is its own sort of inflation.

I do agree that they should source things better.

dragonwriter2• 5 years ago

Remember that if you held the true value of a currency flat with increasing automation and technological efficiency you should get more for the same amount of money.

That...requires a very special definition of “true value”. If the “true value” is measured by consumer goods and services you can exchange it for, this is trivially false. If it is measured by labor hours of production output you can exchange it for, it is equally trivially true. Neither is uncontroversially the One True Meaning of “true value”.

voisin• 5 years ago

would make everything 6.73X more expensive

Not everything. The weighted average.

dragonwriter2• 5 years ago

The author contends that the old fixed-basket-of-goods-with-fixed-weighting that doesn’t account for substitution is more appropriate that modern methods which account for substitution.

So if you started tracking inflation before automobiles were available, then your 2020 stats shouldn’t be based on costs of automobiles at all, but should reflect horses and carriages with weighting reflecting their use in your baseline year.

That this approach is both seriously flawed and increasingly so the more rapidly available products and consumer behavior evolves should be obvious.

The old method is simpler, has less room for difficult assessments like substitution and hedonic adjustments, but is fundamentally broken in dealing with the modern world.

Using an outdated fixed basket and weightings means you are ignoring what are currently essential goods but giving heavy weight to things that used to be essential goods but have become niche vanity consumables or luxury collectibles.

jjoonathan2• 5 years ago

Does the new methodology include a negative hedonic adjustment for substitution of inferior goods? Anecdotally that sort of thing seems to have been on the rise for a decade and by my reckoning this scenario should definitely count as inflation:

    Wage stays constant
    Price of health care goes up
    Make do with worse health insurance
    Price of housing goes up
    Move in with parents / more roommates

danpalmer• 5 years ago

Did they change the tracking methods because we found better ways to track it?

DavidButter• 5 years ago

https://www.investopedia.com/articles/07/consumerpriceindex.... https://www.thestreet.com/opinion/cpi-manipulation-has-exace...

hartator• 5 years ago

Better or politically motivated?

RoboTeddy• 5 years ago

This article checks ShadowStat’s inflation work using both theory and a variety of crosschecks, and ultimately even discovers a computational error: https://www.thestreet.com/economonitor/emerging-markets/deco...

neaanopri• 5 years ago

Does the author want us to know what "Shadow Government Stats" means? If you are trying to make a point, you need to explain that.

blake1• 5 years ago

This comes up every now and again, and it's always just as meaningless. This current attempt to unmask the government's attempt to hide the real inflation is insinuating that the official statistics were changed to hide the reality.

The accepted definition of inflation is a general increase in prices.

The best measure of this is not self-evident, and CPI is an estimate of the cost of a basket of goods that represents basic living expenses. The old CPI series did not account for the quality and durability of the goods in the basket which was increasing over time.

Transportation is a big component of CPI, and it was observed that while newer cars cost more, they also last longer and have more features (airbags, antilock brakes, more reliable engines), which meant that CPI had become a hybrid inflation + technological advancement index.

There are various ways to fix this, but it's no conspiracy.

babesh• 5 years ago

I wonder what that better set of measures would be.

Food

Shelter

Health

Entertainment

Education

Communication?

Science?

Even within each, you have changes not only in quantity and quality but in kind.

cameldrv• 5 years ago

The quality and durability of some goods, like cars, has increased. Others, like home appliances have declined. It used to be, circa the 1990s or so, that a washing machine would last 20 years. Now 5 is pretty typical.

frankbreetz• 5 years ago

So, it looks like the average difference in between the SGS - Alternative CPI-1980s about 7%-8% between 1990 and now so that means that a dollar back then is worth about 7.5- 10 dollars today (1.07^30 -- 1.08^30). The average wage for person who graduate high school, but didn't go to any college was 26k in 1990[0]. So, this is claiming that the average high school graduate made 200k-260k in today's dollars. This is not true. Is my math wrong? I feel like these inflation fears are getting ridiculous.

[0]https://www.infoplease.com/business/economy/median-annual-in...

wolfretcrap• 5 years ago

What are some modern day inflation hedge? The past generation depended on gold but it seems new generation doesn't like the idea of lugging around the yellow metal and likes crypto currencies more.

TradingPlaces• 5 years ago

Hi. Long time lurker here. Finally something in my expertise.

The story of why they changed inflation measures may interest y’all, because PCs were the impetus. In the early 1990s, PCs were pretty widespread, and economists realized 2 things:

1. PCs were still not in the CPI “basket of goods” 2. They all had PCs with Excel and stat packages on them! Their data processing capabilities had grown exponentially in the past decade

So 2 major changes: 1. Rebuild the CPI basket of goods more often to reflect changing consumption patterns 2. Create a new measurement as part of Personal Consumption Expenditures (PCE) that rebuilds the basket every month based on what people actually bought.

The big issues tackled by PCE price indexes: 1. Measures what people actually buy, not some fictional basket of goods. 2. As such, it accounts for substitution effects. Apples get expensive, so you buy bananas instead, even though you prefer apples. If everyone stopped buying apples last month, it would not get counted at all in PCE. 3. Changing consumption patterns like the PC example.

CPI is good for tracking the price of one thing over time PCE is good for tracking overall inflation, and within subcategories.

I now return you to your discussions of things I mostly don’t understand.

wintermutestwin• 5 years ago

The only inflation that matters to me is relative to the things I spend money on and the % of my budget that goes to that line item. There is also the consideration that when the price of a given thing raises too much for the value I get from it, I will stop buying it.

That basically means that any generic inflation tracking measurement is minimally useful to me. What is useful is tracking the prices of my critical and large line items over time.

daniel-cussen• 5 years ago

Between the cost of college, healthcare, and other integral stuff like maintaining a given level of privacy and acting collectively against a threat (a pollutant like PFOAS for instance, or addressing lies about you in mainstream media), some things have totally gotten more expensive. It used to be it was enough for an ordinary voter to write a letter. Nowadays you ought to have a college degree, know someone who knows someone, and possibly talk to a specialized consultant (college counselor, prison consultant, public relations, pen tester, and additional doctors and lawyers).

Like, privacy has gotten so much worse, why can't that be included? Or for example, take me, I'm openly ADD (attention deficit disorder) and find all this "attention economy" hype disgusting. I pay real money for my own attention, and the attention I get from doing so is finite. Why isn't the explosion of ads included in the basket? The more ads, the more expensive attention becomes.

Plus, positional goods. Are the coolest luxury clothes included? No, they just have normal decent clothing. But what if normal decent clothing isn't enough to be cool? Like how do you factor in high school popularity contests? Why is being cool not in the basket? The CPI is like an American form of communism, you get what you need, if you want something fancy, you go on a market that's out of bounds. Not a black market, but a place the CPI purchaser never goes. I wish I could go shopping with the CPI purchaser, that would be amazing, just buy exactly what they buy, under the same terms.

Tons of things aren't counted: I believe tax hikes and interest payments aren't included either. At the same time, if the system were fair, it would be abolished instantly. People want there to be loopholes and escape hatches. It's a point system. And moreover, inflation beyond the rate of inflation helps the system break unreasonable promises it's forced to make[1].

[1] Unreasonable promise example: put an end to such-and-such a crime in America. In a country of 300 million people, only the rarest and most blatant crimes can reasonably be ended. I really do think, for instance, that anthropophagy can potentially be ended or at least reduced to once-in-a-decade because it's not very common and involves a missing or dead body. But petty theft? Drug trafficking? Forget it.

mgarfias• 5 years ago

I've been saying this for 15 years and no one will listen.

Krisjohn• 5 years ago

This feels right, the very best kind of right.

Using inflation tracking methods from 80s and 90s, inflation would be ~10%

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