You really ought to go read this: http://www.financialsense.com/stormwatch/2005/0624.html
There doesn't exist any official measure of inflation. I can see several things increasing in cost in the economy. Based on anecdotal evidence, I would say that inflation is 6-7%.
Where do we start??
gasoline prices - up 100%
crude oil - up 50%
gold - up 20%
other commodities - up in the double digits
health care - up 10% per year, every year since I can remember
food - up ~10%
house prices - up 15%
college tuition - up 10% every year
How can you with a straight face say that inflation is at 2%????
The Boskin Commission recommended several changes in the CPI which were then implemented. With these changes, the CPI can be easily manipulated downwards.
Substitution:
The CPI used to be computed each month using a fixed basket of goods. The BLS now uses substitutions in their monthly computations of the CPI. If beef prices rose, it was assumed that people substituted chicken. If chicken prices rose, then consumers would switch to fish. If all these prices rose, well consumers would become vegetarians or maybe start eating Alpo dog food.
Weighting:
Instead of straight arithmetic weightings the BLS began to use geometric weighting. The benefit of geometric weighting is that it automatically gave a lower weighting to those items in the CPI that were rising in price and higher weightings to items in the index that were falling in price.
Hedonics:
The BLS also adjusts prices for quality. Hedonics adjusts the prices of goods as a result of the increased utility a consumer derives from a product.
Last year the price of a 27" TV was adjusted for quality improvements. The 27" TV had a retail cost of $329.99. It was decided that the new model, which still sold for $329.99, had a better screen. After putting this improvement through the governments complex hedonic adjustment model it was determined that the price of the TV fell by $135, concluding that the price of the TV had actually fallen by 29%! The price reflected in the CPI was not the actual retail store cost of $329.99, but $194.99. The problem is that if I go to Worst Buy to buy that TV, I would still pay $329.99.
Another example: A 2005 model car, which went from $17,890 in 2004 to $18,490 in 2005. After adjusting for quality items and making antilock disc brakes standard, the BLS adjusted the actual $600 price increase down by $225. The problem is that the price of the car in dealer showrooms is still $18,490.
The CPI is "program produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services." But monetary inflation has a direct impact on the prices the consumer pays. Why shouldn't house prices be in there? Why not taxes?
Maybe you ought to go and study economics because you obviously don't have a clue as to how the CPI can be manipulated. You also don't understand why inflation is evil and is the bane of all economies with fiat currencies.
We could have 10% inflation, and through manipulation the CPI could come out and say 0%. The government has no problem with lying to the American people and stealing from them. Whether inflation is 1% or 10% it's still a tax on your savings and is morally wrong.
Taxes you pay are your expenditures on public goods (defense, etc.)
Sometimes it is, but most of my tax money goes towards socialist, wealth-redistributing, vote-buying scams. As I also mentioned ealier, the scientific method requires one to reserve judgment until evidence is gathered.
I'm not writing a scientific paper or dissertation here.
We could have 10% inflation, and through manipulation the CPI could come out and say 0%. The government has no problem with lying to the American people and stealing from them.>>>>>>>>>>>
Amen to that! I have a poorly paid job and yet with overtime I will earn far more in one year than my father used to earn in ten years, he supported a wife and four sons, I have no debt and yet I can barely support my wife and myself.
Not really. You can still buy a lower quality screen which is $135 lower: that is how that number was arrived at. Again, you can question whether that measurement was made precisely enough, but that is how it is made.
When high-quality goods drop in price or are sold at the previous price, lower quality goods also drop in price. That is what is reflected here.
An even better example is housing expenditures. Everyone is complained, even before the recent price increases, how it gets harder to "make ends meet" and "just pay the mortgage." But an average house built today is 45% bigger than in 1950s, while the average household is almost twice smaller. Are people paying for the same housing? No, they are buying much more and complain that it is hard for them to do so. The same is with TVs and everything else. One does have to consider quality when making comparisons.
Milk with vitamin supplements is not milk that lacks them. If one were previously buying milk for $2 without vitamins and now spend the same $2 for milk with them, one saves on the vitamins, i.e., there is a decrease in expenditures on the basket that consists of milk and vitamins. Into the CPI, this is entered under "milk" and price is adjusted downward. Again, you've got to understand what is being done here and how things are labeled.
Incidentally, in your list of grievances you naturally, as do most people, discount all the falling prices --- for computing, gas for twenty years, air travel. You notice what hurts and take what benefits you for granted. The CPI does not do that, which is why you doubt disbelieve it.
The CPI is "program produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services."
Correct. Note the "representative basket" in the description. What do you have against substitution? When prices change, you change your consumption bundle. When price of meat falls, you buy less potatoes and more wine. Since the majority of people do that the representative basket changes. Substitution must be taken into account.
But monetary inflation has a direct impact on the prices the consumer pays. Once again, a nonsensical manipulation of notions. Prices ARE monetary in this economy.
Why shouldn't house prices be in there? They are, via rent equivalents, as you mentioned earlier.
Since 2/3 of us own rather than rent, one has to bring to a common denominator costs of ownership and costs of renting. That is what the equivalent does.
: Why not taxes? I answered that question earlier. If you did not understand or I failed to make it clear, ask. Mere recitation of questions does not help.
Two reasons here. Firstly, by being representative, the basket is not designed to include everything: vacations in Europe and yacht ownership are excluded because they are of no concern to a typical consumer. You can extend the list. To point to a particular item and ask why it is excluded is most likely to elicit the same answer.
Second, the basket is designed to measure the cost of private goods. The government provides public goods and pays for them via taxation. Taxes are therefore excluded.
Moreover, precisely because taxes are well-measured, there is simply no need to measure them again. Economists do aggregate the CPI data and taxes when they consider real and discretionary incomes. You confuse model building with measurement. It is one of the basic notions in measurement is not to confound what can be handled separately and aggregate AFTER measurement is performed.
Maybe you ought to go and study economics I agree. And I've been doing that for a couple of decades by now.
because you obviously don't have a clue as to how the CPI can be manipulated.
AS I expected, you are (at least somewhat of) a conspiracy theorist. Because something can be manipulated it does not follow that it is manipulated.
: Further, there are other time series data that are routinely compared fot the CPI. Any serious contradictions would've been detected. For you, this process is a black box and you are understandably puzzled by what comes out. If you were to open the box, you would be smiling at your present suspicions. Which is why I suggested to you earlier to acquire some depth. You clearly have breadth, having been exposed to a great deal of information and raw data. That is admirable. But to understand what those MEAN one needs depth. And it is very sad to see that you, a clearly intelligent person, put your foot in your mouth when you speak about basics.
Finally, did you notice that, while ostensibly answering my suggestion, which you quote in the beginning of your post, you don't even address it at all. Offer an inflation measure for a BASKET of goods if you have it --- that was the request. Instead, you recite inflation in individual commodities. Which once again underscores that you criticize (Fed's, mine) answers to the question you don't understand.
You also don't understand why inflation is evil Where have I given you evidence for that conclusion.
Nowhere at all.
and is the bane of all economies with fiat currencies. Great! Thank you. That is what I suspected from the start: you've read conspiracy theories about the Fed and how it is anti-American, and simply retain information that seems to corroborate that conclusion. You are not looking for the truth: you look for support of your irrational and uninformed beliefs. We part our ways here.
Whether inflation is 1% or 10% it's still a tax on your savings and is morally wrong.
Where did we move from measurement of inflation to whether it is necessary and, even further, to the moral aspects of it? Once again you reveal that you are not seeking the truth but merely pounding your victimized chest, feeling morally superior to everybody else. Tens of thousands of economists --- are they also in cahoot with the government? You have no clue how idiotic your statement is. There are dozens of the professors that visit the Fed Banks every year and work on the same data. Those same people work their for years full time. The University of Minnesota Econ Department has a particularly close research relationsjips with the Fed Bank in Minneapolis. All these people are also stealing from you; they all are covering up for the government?
Silly beyond belied. And based on complete ignorance. What's worse, not only will you not change your mind --- you will not even acquire doubt in your position in the face of contrary arguments and easily verifiable facts.
What a waste of your intelligence.
EP: Taxes you pay are your expenditures on public goods (defense, etc.)
Sometimes it is, but most of my tax money goes towards socialist, wealth-redistributing, vote-buying scams.
Here you reveal that you do not understand what public goods are and rave against them nonetheless. Your complaint, with which I completely agree, that the government should not make public some goods that are private; that our government is too big. I agree with that. But that was not the point and remains irrelevant to the present argument: once these goods are provided by the government, they ARE public. And therefore beyond the scope of the CPI.
EP: As I also mentioned earlier, the scientific method requires one to reserve judgment until evidence is gathered.
foobeca: I'm not writing a scientific paper or dissertation here.
You confuse pursuit of truth with the public recognition of the results of that pursuit. When you receive a Ph.D., you receive recognition by society for your accomplishments. When you publish a paper in a peer review journal, you receive recognition and acknowledgment for new the truth you have uncovered.
None of that has anything to do with the pursuit of the truth itself: that you do within yourself, and whether you'll be paid for that is irrelevant.
And that is what scientific method refers to: pursuit, not the sale, of truth.
I've give you numerous examples of contradictions WITHIN your own statements. Internally inconsistent models cannot possibly be correct and result in correct predictions. That does not bother you; as I said earlier, you do not betray even a shred of doubt. Well, be stubborn in your delusions; it's your choice. Perhaps, it gives you are feeling of superiority over tens of thousands of hardworking economist: you are so much smarter than all of them combined --- and, most importantly, even without doing any work, not even understanding basic notions! Great. Enjoy.
I am sorry, but I cannot spend any more time on this discussion.