Economic Misery Index - Govt Stats understated?

I have tried to point out the difference between headline and core inflation here many times. Some people have actually argued that it makes sense to exclude food and energy.

As always, I recommend keeping an eye on John Williams "ShadowStats"

This article is particularly relevant.
http://www.shadowstats.com/article/56

 

"Growing number of experts" this line cracks me up. Statistical manipulations are nothing new, they have just been extremely bold for the last few months.

They say the reason inflation isn't bad is because furniture and hotel prices are down. So, walk to IKEA and buy a bedroom set - just don't have it delivered. And be sure to rent a lot of hotel rooms since they're cheap now, just make sure you walk to them, too.

 

For most middle to lower income levels, food and energy expenses are a significant part of the budget. The other day I was at the grocery store and cherries were $8 for a small bag! I love cherries, but they are now officially out of my price range. Yet, I don't believe I am necessarily in the the buying hamburger instead of steak scenario, because I am not buying lower quality. Instead, I am buying much less of the pre-processed and pre-packaged type food. One trick I learned is if you stay on the outer edges of the grocery store, you will spend less. If you venture into the middle of the store, that's where most of the pre-packaged food is. I agree though, they need to figure in food and energy expenses to judge how the economy is doing.

 

The last time inflation was going through the roof was in the late 1970's early 1980's.

It would be appropriate to at least go back to methods of measurement that were used at that time. It would paint a picture that is far more clear in terms of comparison.

Increases in costs of food and fuel are dramatic at this point in time. I would clearly like to see costs measured in the exact same way as measured at that period so as to describe conditions in a similar fashion. Anything else is subject to rhetorical and political hocus pocus.

 

From the article I linked earlier (and ideas I believe you have referenced in the past).

http://www.shadowstats.com/article/56

Excerpts

 

In reading through Williams' thesis I'm surprised that neither AARP or unions raised their voices during the early 1990's when, according to Williams the methodology for calculating cpi was changed.

During the earlier part of the 1980's CPI escalations were often a significant element of projected increases in commercial real estate leases around the nation, and similarly a significant element in calculating investment and cash flow values on properties. Tenants could see fairly representative estimates and present value estimates of long term lease costs and investors could see see similarly fairly representative expectations for cash flow on both actual and present value bases.

There were a wide variety of cpi estimate models available for many industries. I would think that both AARP, which is and has been one of the most powerful lobbying groups in DC and the Unions would have been fully capable of analysing the impacts of these changes and would have or should have raised a stink.

I'm not that sophisticated but used the existing models on a regular basis during the 1980's and could ultimately see how changes were or could impact escalations over time.

I just don't see how AARP, labor unions or other groups dramatically impacted by contracts or agreements based on CPI changes could have let a system change that dramatically understated cpi rate changes from the manor in which it was calculated in the 1980's.

 

I don't need a government or news outlet to tell me when my purchasing power is declining. It's obvious.

 

The state of the economy as a whole can look dramatically different contingent on your economic status.

If I'm low income and struggling w/ money price increases in gas, home fuel and electricity and food costs are devastating.

If I have a lot of liquidity and I can buy a new house at 75% of what I would have paid last year for a house...I'm doing great. If I mortgage it out and get low rates at a lower price...my occupancy costs just dropped like a rock! and I'm a happy camper.

If I can buy 5 or 6 rental homes at 60-70% of what they would have cost a year or two ago and get them well rented with good cash flow....Bingo....I'm doing great.

Inflation, cpi increases, and which costs are changing in which directions have different meanings to different folks dependant on financial status.

For comparison's sake they should at least take cpi methodology back to the method of the 1980's. It would measure elements of inflation in ways similar to the last period of serious inflation. Actual application and usage of these measures were frankly not well developed until probably the 60's or 70's. so the 1980's methodology reflects a meaningful period of comparison.

Since CPI represents an astonishing large bucket of price indicators it would be further helpful to break it down into components that reflect impact on folks within the economy or elements of the economy wherein the measures are helpful.

For instance a focus on costs that are basic and necessary and hit those with less income is far more meaningful to far more people than a focus on costs that are used less. In other words cost increases in food have more meaning to more people than cost increases in hotel occupancy.

Measures of this nature would add a lot of depth and meaning to the analyses of costs.

 

Except that they are not effected. Social security isn't indexed to inflation it's indexed to wages which over time tend to rise faster then inflation.

 

Wages rise faster than (price) inflation?

Sounds like it's inevitable that every business will go bankrupt when their employees eventually make more than the price of goods sold...

 

If so...that answers my question. merci!

 

Which would be true if productivity wasn't factored in also.

 

The best way to do that, is to open source the data and the methodologies.

Mark Sanford and the South Carolina government recently pursued an initiative to open source government expenses.

This is the future of transparent and accountable government. Real time reporting and disclosure of this data, will allow independent citizen auditors to compile data and expose areas of government waste and abuse.

WT, there is no reason you or I should not be able to access the data compiled, audit it, and then apply the methodology to create our own statistics, and in this regard, "double check" government.

Except that the data, the methodology and the adjustments are all government monopoly, one which is never audited externally.

 

And how does productivity factor in? Let's break this down.

 

Because it allows employees to produce more goods while working the same number of hours, which allows companies to see more goods while they labor cost stay the same, so the labor cost per unit actually falls making the goods cheaper to produce.