Rates unchanged!!

[k p]

there's good arguments to be made that the index isn't an accurate measurement of inflation, no question. That clearly isn't what a good number of posters in this thread are arguing, however,

I have been saying this, and although I'm not following too closely what everyone else is saying, I know that this is exactly what I'm saying because I even said "how much milk does a person buy in a month anyway". If all of a sudden milk doubled in price, I don't think most people are going to end up broke. But when housing doubles, that is a huge problem.

So if the index that is used to track inflation doesn't actually track the real cost of most of the things that people need and use every day, then what good is it?

Right here it says that rent is calculated, but real estate isn't. I find it hard to believe that if we figure inflation has been 2% per year for many years, that this accurately reflects rent increases. Aren't many people even living in the same place for 20 years because the rent can only go up so much every year, but all the other buildings around them are too expensive now because with a new lease, the current rent is so much higher than what someone else is paying from 5 years ago who is fortunately bound by a max increase per year? What I mean by this is that yes, someone who has been in the same building for 10 years might only see a 2-3% rent increase, but if you have to move for a job and used to pay $1000 a month, no way could you get as sweet of a deal in some new area because you probably have to pay current market rates which are much higher, and then be locked into the 2-3% max rate increase.

http://www.bls.gov/cpi/cpifaq.htm#Question_7

I don't even live in the US, but in my city in Canada, many people are paying 50% or more of their incomes now on rent, and this wasn't the case 5-10 years ago. I agree that some food items haven't gone up much, but many itemes, with housing being the biggest expense, have vastly grown above and beyond the 2% inflation that CPI numbers seem to suggest.

For most people, wages have stayed the same, and yet so much more of their monthly paycheck is going to pay for just the essentials.

 

[i960]

Calculated rent is also based on owner based hypothetical indications of rent and not necessarily entirely based on MARKET rates or recently occupied rental rates.

http://www.forbes.com/sites/halahto...roblem-with-cpi-and-how-it-hurts-the-economy/
http://www.slate.com/blogs/moneybox/2014/02/24/housing_inflation_the_cpi_is_a_disaster.html

 

[Tsing Tao]

I want to be clear that at this point I'm simply trying to debunk the persistent, completely irrational insistence by the conspiracy theorists that the official CPI numbers are completely faked, nothing else. I've asked for just a shred of quantitative evidence that this is the case and all I got back was the assertion that 1 percenters are hoarding 5 pound sacks of sugar! It doesn't get more "real world" than pictures in your local supermarket, are you up for it der_kommissar, eurusdzn, k p, spacewiz, Tsing Tao?

Can you please show me where in this thread I said inflation figures were intentionally faked?

As for being up for pictures in the supermarket, sure. I work in the consumer packaged goods industries. I look at prices in 100s of categories/sub categories on a weekly basis, through IRI syndicated data. I'm not going to be surprised.

What is it you wanted to review?

 

[Sig]

Great, I think we've all moved to agreement. You've started to actually look at the CPI and realize that items like rent and medical costs you didn't think were there are, rather than dismissing it out of hand, we all agree that 4 pound bags of sugar aren't a plot by "the man".
Clearly CPI is going to measure an average of inflation, and some individuals are hit more than CPI would indicate and other less so in each constituent area. The "fixed income" senior who's popped up several times in these threads generally owns their house and these home owners are almost completely un-impacted by rent increases shown in CPI, while a mobile 25 year old professional who moves to San Francisco this year is impacted far more than CPI would indicate. How well CPI manages to measure the average impact to everyone is the tough part that is almost impossible to get exactly right, we can just look at the percentage moves of each constituent and make our own informed decision about overall impact. When I do that I don't see hyperinflation across constituents since easing began in 2008, even if you take into account disagreement with the rent calculation method or how much the price of milk impacts an average consumer. However at this point I'm happy to agree that you could take issue with an individual calculation method for an individual constituent, or the weighting of a given constituent, while still agreeing that the calculations were made accurately per their specifications.

 

[der_kommissar]

Can you please show me where in this thread I said inflation figures were intentionally faked?

As for being up for pictures in the supermarket, sure. I work in the consumer packaged goods industries. I look at prices in 100s of categories/sub categories on a weekly basis, through IRI syndicated data. I'm not going to be surprised.

What is it you wanted to review?

Tsing, the issue is inflation going forward ...Sig's proposal would obviously measure future inflation, which I'll state on record, will more than likely subside in the next year (just an educated guess), based on the implosion of lots of commodities and a weaker economy...However, the initial debate was about inflation post QE, i.e. starting around 08/09...

Another issue with a supermarket survey would be cost per unit...As you well know, retailers have been shrinking package sizes to assuage customer "sticker shock". This has been going on for at least the past decade, since we saw a very similar Fed induced reflationary boom between 03-07.

 

[Tsing Tao]

Great, I think we've all moved to agreement. You've started to actually look at the CPI and realize that items like rent and medical costs you didn't think were there are, rather than dismissing it out of hand, we all agree that 4 pound bags of sugar aren't a plot by "the man".

I have no idea if you're meaning this as a response to me or not (since you didn't quote everyone but responded after my post) but I didn't dismiss items like rent and medical cost. So I have no idea what the hell you're talking about.

Clearly CPI is going to measure an average of inflation, and some individuals are hit more than CPI would indicate and other less so in each constituent area. The "fixed income" senior who's popped up several times in these threads generally owns their house and these home owners are almost completely un-impacted by rent increases shown in CPI, while a mobile 25 year old professional who moves to San Francisco this year is impacted far more than CPI would indicate.

Can you show some source that says the "fixed income" senior generally owns their house? You know, since you're so keen to tell us we shouldn't just state stuff, but rather have a source. This isn't to say that the mobile 25 year old you mentioned isn't impacted more on rent, but I think you're significantly understating the impact of rent, medical, etc on seniors.

How well CPI manages to measure the average impact to everyone is the tough part that is almost impossible to get exactly right, we can just look at the percentage moves of each constituent and make our own informed decision about overall impact. When I do that I don't see hyperinflation across constituents since easing began in 2008, even if you take into account disagreement with the rent calculation method or how much the price of milk impacts an average consumer. However at this point I'm happy to agree that you could take issue with an individual calculation method for an individual constituent, or the weighting of a given constituent, while still agreeing that the calculations were made accurately per their specifications.

Wonderful. The problem is that absolutely none of this is support as to why the Fed should keep rates at the zero bound any longer, considering that these are emergency levels not consistent with an economy NOT in an emergency - which is what started this discussion in the first place.

 

[Tsing Tao]

Tsing, the issue is inflation going forward ...Sig's proposal would obviously measure future inflation, which I'll state on record, will more than likely subside in the next year (just an educated guess), based on the implosion of lots of commodities and a weaker economy...However, the initial debate was about inflation post QE, i.e. starting around 08/09...

Don't be so sure that prices will fall. They may not increase at the same rate - or in some cases at all - but manufacturers and retailers are notoriously sticky about lowering prices. They may not raise them, but they don't give ground on what was so difficult to win. I have yet to see a study or any hardcore information showing that stagnant prices is a bad thing for consumers, despite all the shrieking about deflationary forces.

Another issue with a supermarket survey would be cost per unit...As you well know, retailers have been shrinking package sizes to assuage customer "sticker shock". This has been going on for at least the past decade, since we saw a very similar Fed induced reflationary boom between 03-07.

No doubt. Hidden inflation in the form of "down ouncing" is very prevalent. But the studies I look at take that into account.

 

[felixbocharov]

The problem with the Fed is that it treats its Open Market Committee Meetings like they were in a just another faculty meeting of the university, which makes sense since they are all academic economists. Instead of relying on opaque macroeconomic theories, they should bring in some community bankers and pension fund managers and ask their respective opinions. If the Fed had simply eliminated the 0-.25% fed funds target and set the rate at hard .25% with quarter point moves scheduled over next two meetings and stopping there until further notice, markets would not be moving on the basis of speculation and anxiety over future Fed moves.

 

[Michael J. Fletcher]

The markets are reacting for the same reason that they always do these days: maximum harvest. Whichever direction transfers the most money away from the masses is the direction that the HFT bots will go using coordinated, low-volume/high-rate orders. The headlines, as nonsensical as they often are, merely try to apply reason to the prices that result from the HFT harvesting systems.

 

[Tsing Tao]

Oh, and you might have heard of that housing bubble bust, somebody's renting one of my houses for far less than the market rent in 2007, thats called deflation, not inflation.

Hmm...