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  1. Forum:General Discussion

    Thread:CPI

    Thread Author:Helz

    Post Author:Lag

    Replies
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    2,014

    ►►Re: CPI◄◄

    Also any discussion on inflation would be incomplete without a mention of the Personal Consumption Expenditures Price Index (PCE) which is under the purview of the US Department of Commerce, Bureau of Economic Analysis.

    The PCE is arguably a better indicator for macro-economic inflation (for various reasons, which I won't get into - it's a rabbit hole in it of itself), as it's also the metric that the Federal Reserve uses as its inflation barometer.

    Not to say that the CPI is unimportant, social security benefits are adjected using the CPI which has rippling effects throughout the economy - but for talks about macroeconomic inflation the PCE is generally a better metric. (But even then, the two are highly correlated anyway)
  2. Forum:General Discussion

    Thread:CPI

    Thread Author:Helz

    Post Author:Lag

    Replies
    26
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    2,014

    ►►Re: CPI◄◄

    Quote Originally Posted by Helz View Post
    Im curious though, does anyone living in the US have a different experience with pricing?
    Sure, my grocery bill has been largely unaffected.

    On 2x4's specifically I believe its just price gouging with lumber yards being well stocked and lumber mills having never slowed down
    Claiming lumber mills never slowed down is a bold claim considering all the reporting and market data to the contrary.

    I just see a very substantial disconnect between what I observe and what I see reported. ... I have to accept I could be totally wrong and connecting dots that don't exist but the difference between what we are being told and what I can see and hear from other people is just too extreme for me to ignore without poking the subject.
    Where you seem misguided is in assuming that the observations you have made are necessarily attributed to inflation rather than other factors.

    I promise you, the US Bureau of Labor Statistics isn't in cahoots with the Federal Reserve to cover up some astronomical inflation rate.
  3. Forum:General Discussion

    Thread:CPI

    Thread Author:Helz

    Post Author:Lag

    Replies
    26
    Views
    2,014

    ►►Re: CPI◄◄

    Ultimately though you posted this thread on the premise of if you should do a deep dive into conspiracy hunting. Because you observed:

    Quote Originally Posted by LagAttack View Post
    A conflict between your conclusions based on anecdotal observations and statistical facts.
    And are operating under the assumption that either:
    1. Your observations are wrong in some way
    2. The US Bureau of Labor Statistics is wrong


    But this is not the case - there is a third option:

    • 3. There is some other explanation for your observations that is separate from inflation


    And the existence of this third option makes the answer your question of if you should go conspiracy hunting: a clear and resounding "no."

    It is incredibly unlikely that the US Bureau of Labor Statistics is wrong or covering something up, and instead it is almost certainly the case that there are other economics forces at play - and investigating the forces at play in your observations (rather than jumping to the conclusion that it's inflation and the CPI is wrong) would uncover some very interesting economic trends.

    And doing a dive into uncovering these reasons could definitely be worth the effort - for example the 2x4 price increase. Doing a dive into why 2x4's have become so expensive reveals that it is driven by a lumber shortage - which is caused not by a shortage of trees, nor a shortage of production capacity, but rather the combination of lumber tariffs, pandemic driven demand for lumber in remodeling, housing shortages, and the lumber industry's misreading of the implications of the pandemic.
  4. Forum:General Discussion

    Thread:CPI

    Thread Author:Helz

    Post Author:Lag

    Replies
    26
    Views
    2,014

    ►►Re: CPI◄◄

    In fact, most of the things you've raised concerns over aren't even being primarily caused by inflation - they're being caused by gentrification / rapidly rising land values:

    • Your neighbor's rent went up significantly
    • Your home has more than doubled in value
    • Groceries are getting much more expensive
    • Local dining is getting more expensive
    • In Texas - a state with a booming real estate market
  5. Forum:General Discussion

    Thread:CPI

    Thread Author:Helz

    Post Author:Lag

    Replies
    26
    Views
    2,014

    ►►Re: CPI◄◄

    Quote Originally Posted by Helz View Post
    I get what your saying and I do see the same numbers. I just only see them when I pull statistics online and not in my life.

    The cost of basic foods I stock my fridge with has gone from costing me about 50$ a week to about 200$. The same foods I picked up when I traveled to California for work went from roughly 110$ to 240$. My neighbors rent just went from 750$ to 1250$. The cost of a 2x4 in January of last year was roughly 2.50$ and it jumped to around 10$ but now dropped to 7.90$. A year ago I could get an entree with a beer and tip for about 20$ while now I walk out for around 30$.

    These are the things I see in my life and the lives of people around me. But the CPI shows some 5% which does not translate to my life experience. On the most basic level I feel like when you snap trillions of dollars into existence in a fiat currency inflation happens which is reflected in consumer prices but the numbers are showing something very different. I see the same disconnect in online listings and real pricing.

    There is this part of me that has been focused on understanding how much of what I perceive is wrong in this world is just in my head but then I see stuff saying Inflation and CPI has only gone up by 5% and my mind just outright rejects it because of what I see around me. I can accept that CPI does not account for the scalping and such going on where a 3080's MSRP is 700$ but to buy one you gotta cough up 2k but those numbers look totally fucked to me when I walk out of a grocery store.
    "Statistics are invisible; anecdotes are salient."

    Many of your anecdotes are most likely comparing apples to oranges... figuratively and literally.

    And for the ones that aren't comparing apples to oranges - there are countless other explanations for an increase in price that are unrelated to economy-wide 100+% inflation rates.

    On the most basic level I feel like when you snap trillions of dollars into existence in a fiat currency inflation happens which is reflected in consumer prices but the numbers are showing something very different.
    You're not wrong, printing money in a fiat currency causes inflation. There has been inflation in the consumer good price index, in fact inflation is at the highest rate since Jun-Aug 2008, and since 1991 before that.

    Particularly salient anecdotes have just suggested a magnitude to the inflation which is much higher than the true value.

    There is this part of me that has been focused on understanding how much of what I perceive is wrong in this world is just in my head but then I see stuff saying Inflation and CPI has only gone up by 5% and my mind just outright rejects it because of what I see around me
    This is admittedly something that many people do struggle with - a conflict between their conclusions based on anecdotal observations and statistical facts.
  6. Forum:General Discussion

    Thread:CPI

    Thread Author:Helz

    Post Author:Lag

    Replies
    26
    Views
    2,014

    ►►Re: CPI◄◄

    Quote Originally Posted by Helz View Post
    For a while I have been rambling about how inflation calculations are bullshit and some of those implications that follow.

    Something I have very little understanding about but feel is totally insane is the Consumer Price Index. I kinda have equal parts ignorance and feeling its extremely contrived at 5% while I have to spend well over twice as much on gas, food, and building materials from this time last year.

    Just wondering if anyone here has any real understanding on whats going on there or if I should deep dive into my loony toons conspiracy hunting nonsense at some point.
    There is a lot to unpack here.

    For reference let's look at what goes into the CPI:





    Spending twice as much on gas and food is likely either confirmation bias or hyperbole as the prices on gas and food have not doubled.

    Gas
    Retail Gasoline prices have increased from an average of $2.170/gal in Jun 2020 to $3.157/gal in Jun 2021 - a 45% increase - but this doesn't tell the whole story, since the price of gas during the pandemic was depressed due to low demand. Going back to January of 2020 and the price was $2.636/gal - so only a 20% increase since then. Not nearly as much as a 45% increase.



    Although despite that fact - the CPI does work on a 12 month rolling window - and the CPI has the increase in fuel price at 50.8% - way higher than the 5% CPI. This discrepancy is explained when you look at the relative importance of Fuel Prices in the CPI with Energy Commodities only contributing 3.809% to a households expenditures.

    Food
    The aggregate price of food at home has not changed much.



    The area that has seen a substantially larger increase in food prices is the Food away from Home category - which has seen an increase of 4.0% and when you narrow it down to limited service meals, that increase is 6.1%. Someone that eats out a lot at take-out places will notice significant inflation compared to someone that cooks all their food at home. Speculating here because I haven't dug up any concrete data on it, but I suspect this is driven by the shortage of minimum wage workers who work all throughout the limited service meals industry.

    Building Materials
    Building materials are not included in the CPI - the way they might affect it is through housing prices - but building material cost is several degrees separated from housing prices. Furthermore the significant spike in building materials costs (e.g Lumber) has been driven moreso by a shortage than by inflation.

    Then where did all that money go?
    A valid question would then be, if prices haven't increased that much outside of the 50+% increase in fuel prices, where did all the money go, why haven't they increased more?

    The answer to this has to do with a concept known as the velocity of money. The velocity of money basically measures the rate at which money cycles through the economy. A high velocity of money means consumer spending is high, money is flowing quickly through the economy and not spending much time in savings accounts before being spent. Whereas a low velocity of money is the opposite.

    The supply-side shortage caused by the pandemic has created an economy with a very low velocity of money - so a lot of money just sitting in savings accounts, and money sitting in savings accounts isn't being spent on goods and therefore doesn't affect the prices of those goods.

    Except not really.

    Because that money hasn't just been sitting in savings accounts - it's been put into stock and bond markets. Which is why the S&P 500 has continued to reach record high after record high. Inflation has occurred - just not primarily in basic consumer goods (which is what the CPI measures) - rather inflation has manifested itself in the stock market.

    So then to answer your main question:

    Should this be something you are concerned about?
    Concerned? I don't know, if you want to be concerned, sure, go for it. But as long as you have your savings parked somewhere that's historically been a good hedge against inflation (eg real estate or stocks... or gold if you're one of those people) then you'll probably be fine. (Oh and just hope there's not a stock market bubble and then crash, or another real estate crash - but IMO a real estate crash seems very unlikely, at least when compared to the possibility of a stock market bubble)

    The Federal Reserve has stated that it is possible that there could be a period of uncomfortably high inflation coming, and they have adjusted accordingly by moving up their timeline on interest rate hikes. Which in turn has had rippling effects throughout the global economy with many emerging markets mirroring the change with interest rate hikes of their own.

    But nothing at the doomsday conspiracy theory level.

    ===

    Some additional considerations:

    Geographic Region
    I noticed your location is set to Texas. The CPI measures prices in 23 metro areas in the US, two of the metros are in Texas (Houston and Dallas) The prices are aggregated bi-monthly for the two cities alternating months between the two. The city that was aggregated in May was Dallas and their CPI was at 6.3% compared to the national average of 5.0% Of the metros that were measured in May, Dallas had the highest inflation rate of them all.

    Lag
    CPI lags by a month. The current CPI is for May. June CPI is scheduled to be released on July 13th
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