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Thread: CPI

  1. #1

    CPI

    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.

  2. #2

    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
    Last edited by Lag; July 6th, 2021 at 10:24 PM.

  3. #3

    Re: CPI

    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.

  4. #4

  5. #5

    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.
    Last edited by Lag; July 7th, 2021 at 12:50 AM.

  6. #6

    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

  7. #7

    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.
    Last edited by Lag; July 7th, 2021 at 01:16 AM.

  8. #8

    Re: CPI

    I do understand your point. I just see a very substantial disconnect between what I observe and what I see reported. In conversations I have had with friends in Missouri, New York and California they have said they have the same issues. Im curious though, does anyone living in the US have a different experience with pricing?

    Some things are resulting from a shortage of supply or labor but many things are not such as E Textbooks for college. On 2x4's specifically I believe its just price gouging with lumber yards being well stocked and lumber mills having never slowed down the only change in demand or supply to that system was the big freeze Texas had earlier this year (which largely required sheetrock and plumbing supplies, not lumber.) Sectors like Oil or gas totally make sense but that only explains a portion of the observable shifts.

    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.

  9. #9

    Re: CPI

    LMAO @ this thread.

    If you want to accurately measure inflation of certain products, then use the inflation rate for those product sectors. The CPI is only good for one thing and one thing only - to determine the inflation of the aggregate macroeconomy. If gas prices go up, but medical care commodities go down then that CPI will reflect that. Similarly, use inflation rates specific for your state only as a general CPI for the entire country may not be as accurate. So if you're interested in Texan foods and Texan house prices, just stick to those indices instead. Or even better, stick to the city or general region of those prices (e.g., real estate reports).

    Also as in all science, personal anecdotes are bullshit unless many people are reporting same phenomenon under randomized controlled trials. You're only seeing like 6 data points whereas these government statisticians are seeing sample sizes of > thousands. You don't even need more than one degree to understand this.
    Last edited by HentaiManOfPeace; July 7th, 2021 at 09:40 AM.

  10. #10

    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.

  11. #11

    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)

  12. #12

    Re: CPI

    Quote Originally Posted by LagAttack View Post
    Claiming lumber mills never slowed down is a bold claim considering all the reporting and market data to the contrary.
    Earlier today I was at Berdoll Sawmill and was talking with them about it. I also talk pretty regularly with lumbar yards and keep up with pricing. If there ever was a shortage past when trucking stopped for a week or so when Texas froze I have not herd of it from anyone. Something we have been laughing at is how hardwoods prices have not shifted at all. You can get sheets of maple cheaper than you can get some types of OSB and Plywood these days which is just insane (although its worth noting there has been supply issues in sheetrock and plywood with the logistics chain being backed up at the ports so those prices are somewhat justified from my understanding)

    Quote Originally Posted by LagAttack View Post
    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.
    Thats fair.

    I do not think there is some cover up. Just that the metrics used to evaluate CPI and Inflation are not effective even if they exclude secondary markets. This push that argues all the issues are transitory is pretty ridiculous in my opinion although time will tell whenever pricing stabilizes. I personally doubt a 2x4 will ever go back to being $2.38

  13. #13

    Re: CPI

    Quote Originally Posted by Helz View Post
    I do not think there is some cover up. Just that the metrics used to evaluate CPI and Inflation are not effective even if they exclude secondary markets. This push that argues all the issues are transitory is pretty ridiculous in my opinion although time will tell whenever pricing stabilizes. I personally doubt a 2x4 will ever go back to being $2.38
    Like I said, if you're interested in lumber prices, then refer to a lumber cost index: https://fred.stlouisfed.org/series/WPU0811

    As you can see, the indices have increased by 254% when you compare May 2020 and 2021 indices. This is most likely as a result of last year's contracts expiring and new commodity contracts being renegotiated at the current market price, which in turn is also driving other industries relying on lumber materials downstream.
    Last edited by HentaiManOfPeace; July 7th, 2021 at 11:06 AM. Reason: Updated link with lumber instead of plywood.

  14. #14

    Re: CPI

    Quote Originally Posted by LagAttack View Post
    "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.



    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.



    This is admittedly something that many people do struggle with - a conflict between their conclusions based on anecdotal observations and statistical facts.

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  20. #20

    Re: CPI

    I bought my house a few years back for 300K, my real estate agent said we could sell for $450K, I've done minimal work to the inside. How does my property increase in value $150K in about 4 years when everyones pay is essentially the same.

    I live in ASSachusetts where everything is way overpriced.
    This isn't where i parked my car.....

  21. #21

    Re: CPI

    Quote Originally Posted by blinkskater View Post
    I bought my house a few years back for 300K, my real estate agent said we could sell for $450K, I've done minimal work to the inside. How does my property increase in value $150K in about 4 years when everyones pay is essentially the same.

    I live in ASSachusetts where everything is way overpriced.
    Bought our first house in 2013 for $135k, sold it in 2018 for $270k. Bought our current home for $340k, probably could sell it today for upwards of $500k or $600k. Market is fucking insane. Utah here.

    And yeah pay stays stagnant.
    Last edited by BananaCucho; July 14th, 2021 at 07:44 PM.
    Quote Originally Posted by BananaCucho

  22. #22

    Re: CPI

    Quote Originally Posted by blinkskater View Post
    I bought my house a few years back for 300K, my real estate agent said we could sell for $450K, I've done minimal work to the inside. How does my property increase in value $150K in about 4 years when everyones pay is essentially the same.

    I live in ASSachusetts where everything is way overpriced.
    Quote Originally Posted by BananaCucho View Post
    Bought our first house in 2013 for $135k, sold it in 2018 for $270k. Bought our current home for $340k, probably could sell it today for upwards of $500k or $600k. Market is fucking insane. Utah here.

    And yeah pay stays stagnant.
    lol this discussion.
    Meanwhile, in other parts of the world: https://noahpinion.substack.com/p/wh...conomic-crisis
    Quote Originally Posted by Oberon View Post
    from time to time, I act very much like a normal person.
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  23. #23

    Re: CPI

    Quote Originally Posted by OzyWho View Post
    lol this discussion.
    Meanwhile, in other parts of the world: https://noahpinion.substack.com/p/wh...conomic-crisis
    LOLOL. They really are serious about punishing a country from something that happened like over 6 decades ago.. Or is it to protect the go-to retiree state? Mmmm. Mmm. They really should learn how to forgive lol.

    Colossians 3:13 states that bear with each other and forgive one another if any of you has a grievance against someone. Forgive as the Lord forgave you.
    What I got for my 18th Birthday

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  24. #24

    Re: CPI

    Quote Originally Posted by OzyWho View Post
    lol this discussion.
    Meanwhile, in other parts of the world: https://noahpinion.substack.com/p/wh...conomic-crisis
    It may not be as serious of a problem as Cubans are facing. But it's still a problem. It's pretty much impossible for new homebuyers to buy a home these days where I live. Gotta settle for condos or townhomes that are smaller than what we bought in 2013, or rent which isn't an investment at all and a shitty thing to have to do. And rent has gone up significantly anyway as well; people are renting single rooms for more money these days than my entire mortgage payment was in 2018 for a 1500 sq ft home. I honestly have no idea how anyone can afford to buy a new home these days on a single income anymore, even with a nice middle class job. And it's just getting worse. Those of us who got in the game at the right time were extremely fortunate.

    In 2015 we were living off of one $40k salary, and things were tight. No fucking way we could do that today and have the home we had (which, by the way, was a shitty 3 bed 2 bath split level starter home). And that was only six years ago. I was with the same company then as I am now. New hires coming into that position I had still only make $40k.

    Meanwhile my company's stock is through the roof...
    Last edited by BananaCucho; July 15th, 2021 at 01:38 PM.
    Quote Originally Posted by BananaCucho

  25. #25

    Re: CPI

    Quote Originally Posted by BananaCucho View Post
    It may not be as serious of a problem as Cubans are facing. But it's still a problem. It's pretty much impossible for new homebuyers to buy a home these days where I live. Gotta settle for condos or townhomes that are smaller than what we bought in 2013, or rent which isn't an investment at all and a shitty thing to have to do. And rent has gone up significantly anyway as well; people are renting single rooms for more money these days than my entire mortgage payment was in 2018 for a 1500 sq ft home. I honestly have no idea how anyone can afford to buy a new home these days on a single income anymore, even with a nice middle class job. And it's just getting worse. Those of us who got in the game at the right time were extremely fortunate.

    In 2015 we were living off of one $40k salary, and things were tight. No fucking way we could do that today and have the home we had (which, by the way, was a shitty 3 bed 2 bath split level starter home). And that was only six years ago. I was with the same company then as I am now. New hires coming into that position I had still only make $40k.

    Meanwhile my company's stock is through the roof...
    Mmm mmm. Do you blame BlackRock for it?
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  26. #26

  27. #27

    Re: CPI

    Quote Originally Posted by Helz View Post
    I do understand your point. I just see a very substantial disconnect between what I observe and what I see reported. In conversations I have had with friends in Missouri, New York and California they have said they have the same issues. Im curious though, does anyone living in the US have a different experience with pricing?
    I have noticed my grocery bills are higher than before - but I think that is mostly a result of buying more - 2 growing boys are eating more, and with financial stability we have been more lax with this in our budget. So I have no idea if prices have actually gone up, but we are definitely spending more

    Gas? Um, I remember gas prices being over $4 a gallon for a hot minute in 2008. It was expensive as hell to fill up my gas guzzling DirecTV van. So when I see people complaining about high gas prices, I wonder if they notice how every year it goes up in the summer and back down in the winter? But I've never seen it over $4 again since then. Every summer though (last year was an exception) it seems to always go over $3 for a time before eventually dropping back down, this year being no exception

    What else. Service stuff? Like I don't feel like getting a haircut has gotten more expensive, that's still pretty cheap. Eating out does feel more expensive, but then again I see the same correlation with groceries - we simply eat at nicer places now than we used to and buy more food (instead of splitting a meal) lmao. No idea there tbh

    We don't pay for TV. It did seem like internet prices were getting outta hand until we got fiber available in our area - it is way cheaper than shitty comcast and has only gone up like $2 in five years which is fine imo

    Other utilities/bills - tbh wife handles the water and gas bills so I have no idea lmao. Electricity bill is like $9 a month since we got solar so idk

    Tutition cost did seem to increase every year while I was doing the college thing. And I did the college thing from 2012-2019. There's no question about that - it rose every year and it hurt every time. So glad that's over with.

    But yeah man. Home prices. Rent. That's where the problem is, at least around here.
    Last edited by BananaCucho; July 15th, 2021 at 02:19 PM.
    Quote Originally Posted by BananaCucho

 

 

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