Major bingo on-spot sentence of the morning.
I wonder how many understand the components of the CPI, and alternate goods. If they did, they've have a far better understanding of stocks, inflation, valuation, and economic policy.
Aw hell, it ain't complicated at all.
People here talk about what "TRUE" inflation is, or what the Federal Reserve says it is, actually anybody can say inflation is whatever they want it to be because it all depends on what we're working with. Most of us think of inflation as why things cost more when we try to buy them. If the cost of everything we buy doubles, then our index (symbol, sign, indicator, mark, pointer) just went from 1 to 2. This 'index' is for prices of what we consume --our CPI.
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the CPI is just plain irrelevant. Example: don't ever tell your boss that you want a raise because the CPI went up because he'll just say 'yeah, life is not fair'. Tell him that the ECI (Employment Cost Index) just went up and it'll be your turn to tell him that 'life is not fair'. |
The CPI can't be right or wrong because in a market economy prices are what they are --we just got to deal with it. OK, we can argue about who's buying what and when (more frequently asked questions about the CPI here) but it don't matter because sometimes the CPI is just plain irrelevant.
Fine, we got inflation for wages and for consumer prices. If we want inflation for everything --the entire economy -- we can do that too. The guys that measure the entire gdp (the BEA) have their own private index and they call it the Gross domestic product (GDP) price index and it's got prices of personal consumption expenditures (PCE), gross private domestic investment, net exports of goods and services, and government consumption expenditures and gross investment and it's not to be confused with the gross domestic purchases price index in that it ignores price changes in imports of goods and services and includes price changes in exports of goods and services.
Now, isn't that simple?