Inflation: The Invisible Tax (Explained)

[Zippyjuan]

Right. Do they still exclude food and energy in the CPI?

There are two main CPI numbers calculated and released. One does exclude food and energy costs, the other includes them. The basic CPI number includes them.

http://www.bls.gov/cpi/cpiqa.htm

Has the BLS removed food or energy prices in its official measure of inflation?

No. The BLS publishes thousands of CPI indexes each month, including the headline All Items CPI for All Urban Consumers (CPI-U) and the CPI-U for All Items Less Food and Energy. The latter series, widely referred to as the "core" CPI, is closely watched by many economic analysts and policymakers under the belief that food and energy prices are volatile and are subject to price shocks that cannot be damped through monetary policy. However, all consumer goods and services, including food and energy, are represented in the headline CPI.

Most importantly, none of the prominent legislated uses of the CPI excludes food and energy. Social security and federal retirement benefits are updated each year for inflation by the All Items CPI for Urban Wage Earners and Clerical Workers (CPI-W). Individual income tax parameters and Treasury Inflation-Protected Securities (TIPS) returns are based on the All Items CPI-U.

[Acala]

People today own so many more things in all categories than they did back in 1960. Food expenses falling from 25% of expenses to 11% freed up money to spend on other things.

One in five homes did not even have a telephone inside. http://www.census.gov/hhes/www/housi...ric/phone.html 87% had television in 1960 but it was small, black and white with three or four fuzzy channels to watch (by 1980 99% had TVs and dozens of channels to watch). Now you have computers and cell phones. Plasma and LCD TVs. Sixty inches. 72 inches. Cable and satellite programming. Many did not have cars (77% did but many bought used ones). Today two is common( the average is actually up to 2.8 cars per household! http://www.autospies.com/news/Study-...usehold-26437/ ). Homes are larger today. Even after the housing bubble collapsed, more people still own their homes today- 62% in 1960 vs 67% today (measured by "owner occupied").http://en.wikipedia.org/wiki/Homeown..._United_States
More travel and have the opportunity to travel (in 1960 it was by car or train- today you can jet to about anyplace in the world) You could only find certain foods certain times of the year (if you could find fresh lettuce in January it was expensive and not very good- if you wanted tomatos you had to get canned). Now there is incredible choices available at lower prices year- round.
Standard of living worse today? I don't think so.

What you fail to note is that most households now have TWO full-time incomes rather than the one full time income that was the norm back in the 60's.

[Zippyjuan]

True. That has risen from about 25% of famlies (see my BLS link earier) to about 42% today. http://en.wikipedia.org/wiki/Affluen..._United_States

The U.S. Census Bureau offers income data by household and individual. 42% of households have two income earners; thus making households' income levels higher than personal income levels

[Dr.3D]

I don't care how much more people are making now. What about the money I put in the bank? Every year it becomes worth less and less. Now that is really some incentive to put money away and save.

I'm on a fixed income and it isn't like I'm going to get paid more as time goes by. What I get is what I get and it is buying less and less every day.

[Acala]

I don't care how much more people are making now. What about the money I put in the bank? Every year it becomes worth less and less. Now that is really some incentive to put money away and save.

I'm on a fixed income and it isn't like I'm going to get paid more as time goes by. What I get is what I get and it is buying less and less every day.

Yup. Inflation hurts savers and really kills people on fixed incomes. And, of course, the distortions in resource allocation lay the groundwork for the bust.

[ClydeCoulter]

@Zippy,
You say more people "own" more stuff today. How many people "own" their own homes really? Is it that people are in debt for more stuff today?

I "own" my own home but I still owe the bank 550.00 per month until it's paid off, even though I put 160,000.00 (land, poll-barn and building materials) into it myself and I built the house with my own hands (with some hired help). Is that not ridiculous?

I can't eat a cell phone or a 47" TV.

Although I'm from a fairly poor family (my parents did not own a home), my grandfather used to buy a new car every 4 years (cash) and owned his own home (on 5 acres) even though he worked at a "tire" factory.

[Travlyr]

@Zippy,
You say more people "own" more stuff today. How many people "own" their own homes really? Is it that people are in debt for more stuff today?

I "own" my own home but I still owe the bank 550.00 per month until it's paid off, even though I put 160,000.00 (land, poll-barn and building materials) into it myself and I built the house with my own hands (with some hired help). Is that not ridiculous?

I can't eat a cell phone or a 47" TV.

Although I'm from a fairly poor family (my parents did not own a home), my grandfather used to buy a new car every 4 years (cash) and owned his own home (on 5 acres) even though he worked at a "tire" factory.

This is true with my family as well. My uncle, the sole breadwinner for his 8 member family, bought a new car every two years. He owned his home outright, he bought his cars with cash, and he bought a small farm. He did not have to qualify to buy a car. His brothers and brothers-in-law did likewise. They didn't make payments in order to live like people do today. Now one must 'qualify' to buy a car, a home, or even to have a job.

Do you qualify? If not, then work diligently for sound money because that is sorta what they enjoyed.

[Bastiat's The Law]

Bastiat, what are you using for the inflation adjustment?

I priced it in silver because in 1960 you were paid in silver coins and paper was still backed by the quasi Bretton Woods standard. The CPI doesn't capture that and only shows the "moderate" inflation numbers.

[Bastiat's The Law]

Here's one source.

US Dept of Commerce Consumer Income Report

[acptulsa]

This looks like a good thread to repeat myself in.

I think what the newcomer to this discussion has the most trouble understanding is the dollar is not a dollar--it's a nickel.

What do I mean? Well, my old man got out of the Army Air Corps after WWII and got himself a good job paying a dollar an hour. How is that a good job? Easy--it was 1946 and the dollar was still a dollar. As in, when he wanted a Pepsi he paid a nickel for it--now it costs a dollar. When he wanted to ride a bus, he put seven cents in the meter, or a nickel and a half--now it costs a buck and a half. When he wanted to sit down and have a cup of regular old coffee, he paid a dime, or two nickels--now it costs two bucks. When he put gas in the car (it was always cheap in Oklahoma), he paid 14.9 cents per gallon, or three nickles--now it costs three bucks. When he was hungry for lunch, he bought a deluxe double hamburger with all the trimmings for a silver quarter, or five nickles--now it costs five bucks. When he wanted to go to a movie, he paid thirty-five cents or seven nickles--now it costs seven bucks. And when he shopped for a new top of the line Dodge Custom with heater and radio and other options, it would set him back two grand, or forty thousand nickles--now it costs forty thousand dollars.

The Pepsi isn't any wetter, the gas doesn't burn any brighter, the double burger isn't any more filling, and the movie doesn't last any longer today (with no newsreel, serial and cartoon, it actually doesn't last as long). So, there's only one explanation. The dollar is no longer worth a dollar. The dollar is worth a nickel. Period.

Why do you think all the five and ten cent stores have been replaced with dollar stores?