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Thread: The CPI Is Underrepresenting Food Inflation By 40%: Here's The Proof

  1. #1

    The CPI Is Underrepresenting Food Inflation By 40%: Here's The Proof

    The "muzzle" on reported inflation has policymakers and analysts perplexed.
    As Joseph Carson, former director of economic research at Alliance Bernstein writes in his follow up to a "New Working Theory on Inflation", numerous economic explanations and theories have been offered, and policymakers are considering making changes to their operating price-targeting framework. Yet, before any decisions are made policymakers should consider all of the factors that could be keeping a "muzzle" on published inflation.
    Here are two:
    First, a little more than 20 years ago the Bureau of Labor Statistics (BLS) introduced a number of new measurement techniques in the estimation of consumer inflation (see Boskin Commission). So the current business cycle, which started in 2009, is the second consecutive cycle in which these new procedures have been employed.
    Statistical changes have been made to account for product substitution, a greater degree of quality changes in products and services and faster introduction of new outlets or ways in which people shop. The introduction of new variables in the estimation of inflation alters the pattern and at various times the rate of change as well.
    Prior to their implementation, analysts and government statisticians estimated that the potential reduction in core inflation from all of these statistical changes would range from one-half to a full percentage point. Yet, all of those estimates were looking backwards and there is no guidance from the statistical agencies of the scale of the reduction in reported inflation after implementation.
    Odds are high that the impact on reported inflation varies year to year, with some years at the upper end of range of estimate and others at the lower end. Nonetheless, to overlook the impact from changes in measurement would be shortsighted, especially since changes in consumer price of a few tenths of a percent or more do matter a lot when inflation is low, and readings below the 2% target could be misconstrued as a failure of monetary policy, which in turn "forces" the Fed to maintain an unnecessarily easy monetary policy, which results in asset bubbles and wealth inequality, when in fact the only applicable consideration is that the BLS and the Dept of Labor are measuring inflation incorrectly.
    Second, research conducted by the Federal Reserve staff has found that the shift in the measurement of shelter costs two decades ago to only use only prices from rental market and exclude those from the owners housing market systematically removed the largest single "driver" of cyclical inflation, while it also simultaneously reduced the volatility in reported inflation.
    The significance of these findings has not received as much attention as they should. Removing the largest single driver of cyclical changes in inflation means that reported inflation nowadays does not exhibit the same sensitivity to economic growth and interest rates, as was the case in previous cycles. Accordingly, one of the reasons why the trade-off between changes in unemployment and reported inflation has been so benign in the last 20 years is due to changes in price measurement.
    The missed signal from housing inflation was readily apparent in the 2000s when core inflation peaked at a relatively modest 2.5% even though house price increases were recording double-digits increases. In previous business cycles in which house prices recorded gains north of 10% core inflation readings were two or three times higher. In the current cycle, house price increases have run ahead of rent increases, but not to same extent as was the case in the 2000s.
    As Carson concludes, these findings strongly suggest that price measurement issues are important to consider when looking at trends in the reported inflation data. For all of the conceptual changes and measurement issues the key question policymakers should be asking is whether the "muzzle" on reported inflation still makes it a useful benchmark for the price-targeting framework. The fact that currently constructed published price measure miss modern day inflation in the asset markets strongly suggests policy may need a new working definition of inflation before they contemplate any changes to the price-target framework.
    * * *
    That's the theory. Now, courtesy of Bloomberg, here is a dramatic observation of the practical implications of erroneous inflation measurements, which suggests that the US government is under-representing arguably the most important aspect of the consumer price inflation basket, that of food, by as much as 40%.
    When Bloomberg's Cameron Crise encountered the dataset that is used to compute elements of the CPI that is in turn used by the Fed to determine monetary policy (and more often than not, results in asset price bubbles) he decided to compare how this theoretical price compares to real world prices.
    Ignoring such volatile series as cell phones or haircut prices, he instead focused on groceries, and specifically cereals and bakery products, "the kind where you can buy the same thing in every grocery store in the country." He notes that there are six components to this subindex:

    • all-purpose flour,
    • long-grain rice,
    • white bread,
    • wheat bread,
    • pasta
    • chocolate chip cookies.

    Then, to figure out what the real world prices are (i.e. not the "extorionate prices we pay in greater New York"), he signed up for supermarket delivery services in Columbus, Ohio, and Murfreesboro, Tennessee, because "while they may not represent the exact national average, they nevertheless seem like a reasonable proxy for middle America."
    Once the representative middle-America venues had been picked , a selection was made of an identical basket of six goods, converting them to a unit price per pound ala the CPI basket. And while the products chosen "aren't bargain-basement" value'' generics, they aren't premium foodstuffs either." The results, as Crise, notes, "were pretty compelling."
    As the table below shows, the CPI is chronically misrepresenting the price of every product in the food basket, with the gap between the government "price" and the average real-world price ranging from 14% in the case of chocolate chip cookies, to as much as 64% for a pound of white bread.
    Overall, in the specific case of cereals and bakery goods, the difference between the CPI price for the basket of six core food products, and the average price of the same products in Ohio and Tennessee, is a whopping 39%. This same execrise extended to all other goods and services in the basket would reveal a similar bias to misrepresenting prices to the downside relative to reality.

    Here again are the results, represented visually.

    The critical problem represented above is that while the Fed believes that the CPI calculation is accurate, and thus Americans can be subject to far looser monetary policy as the FOMC believes they are paying far less, the reality is that monetary conditions have to be far tighter for reality to catch down with the BLS's woefully incorrect price assumptions.
    And keep in mind, the example above represents what middle-America is paying. The prices for these goods along the east or west seaboard would be substantially higher, resulting in a far greater underpricing of reality by the BLS.
    As Crise observes: "while there was one instance where the real world cost matches the bureaucratic estimate, for the most part food - or at least this kind of food - is a lot more expensive than the bean counters would have you believe."
    And his conclusion: "perhaps if the Fed wants to see higher inflation, they should just send a few staff economists to the "social Safeway" in Georgetown."
    For once, we actually agree with "MacroMan."



    https://www.zerohedge.com/news/2019-...d-inflation-40
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  3. #2
    this is nothing new.. I think it was 1991 when they changed the 8 oz steak component to 8oz of ground beef under the premise that when times are tough the common housewife will change her grocery habits accordingly.

  4. #3
    40 percent may even be slightly off . From the time Obama was elected to now , say a decade some items like bacon and sausage have probably increased over 100 percent .
    Do something Danke

  5. #4
    Surely this is just a misunderstanding of how CPI works. @Zippyjuan could you provide some clarification to help straighten things out?
    It's all about taking action and not being lazy. So you do the work, whether it's fitness or whatever. It's about getting up, motivating yourself and just doing it.
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    Donald Trump / Rand Paul (Vice Pres) 2016!!!!

  6. #5
    Lies, damned lies, and government statistics.
    Twitter: B4Liberty@USAB4L
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    The views and opinions expressed here are solely my own, and do not represent this forum or any other entities or persons.

  7. #6
    The foods definitely seem 40% smaller than they used to be, or I just may be getting bigger. I was thinking I had alice in wonderland syndome but it might have something to do with the expansion of the universe after the big bang.

  8. #7
    The exercise in the OP is a poor attempt to measure overall price inflation. It does not even look at price changes over time and uses way too small of a sample. All it shows is that some stores charge different prices for the same items. That is not a measure of inflation.

    Ignoring such volatile series as cell phones or haircut prices, he instead focused on groceries, and specifically cereals and bakery products,
    Food accounts for about eleven percent of consumer spending and thus is counted as eleven percent of the CPI. Flour products are a small segment of that so a bad measure of overall price inflation.

    Different stores do have different prices and the CPI looks at tens of thousands of prices in all categories and across the country.
    Quote Originally Posted by Swordsmyth View Post
    The quality seems to have dropped significantly since I came here, I guess you get what you pay for.
    "There is always a tweet. That has become accepted fact in the Trump presidency: For every pronouncement the President makes, there is at least one tweet from his past that directly contradicts his current view." -CNN

    I am Zippy and I approve of this post. But you don't have to.

  9. #8
    Quote Originally Posted by Zippyjuan View Post
    The exercise in the OP is a poor attempt to measure overall price inflation. It does not even look at price changes over time and uses way too small of a sample. All it shows is that some stores charge different prices for the same items. That is not a measure of inflation.



    Food accounts for about eleven percent of consumer spending and thus is counted as eleven percent of the CPI. Flour products are a small segment of that so a bad measure of overall price inflation.

    Different stores do have different prices and the CPI looks at tens of thousands of prices in all categories and across the country.
    You know how I know you are full of $#@!, You know the whole Women's employment and workers rights is bull$#@!. When I was a kid moms didn't work because they chose to have kids instead- but they have turned the argument into women weren't able to get jobs. You wanna know why birth rates are so low but the economy is doing so good that both parents can work and the kids still can't afford college and they are paycheck to paycheck. When I was growing up one parent could work and the other one could work if they wanted to send their kids to college, now both parents have to work in order to feed the kids.



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  11. #9
    Quote Originally Posted by nikcers View Post
    You know how I know you are full of $#@!, You know the whole Women's employment and workers rights is bull$#@!. When I was a kid moms didn't work because they chose to have kids instead- but they have turned the argument into women weren't able to get jobs. You wanna know why birth rates are so low but the economy is doing so good that both parents can work and the kids still can't afford college and they are paycheck to paycheck. When I was growing up one parent could work and the other one could work if they wanted to send their kids to college, now both parents have to work in order to feed the kids.
    The employment rate is a measure of people looking for jobs. If you choose to stay at home and raise kids, you don't count in the unemployment figures. To count, you need to be unemployed and looking for work.

    Food used to be about a quarter of a family's budget. Today it is about ten percent. People have found other things to spend their money on.

    Last edited by Zippyjuan; 05-26-2019 at 12:09 PM.
    Quote Originally Posted by Swordsmyth View Post
    The quality seems to have dropped significantly since I came here, I guess you get what you pay for.
    "There is always a tweet. That has become accepted fact in the Trump presidency: For every pronouncement the President makes, there is at least one tweet from his past that directly contradicts his current view." -CNN

    I am Zippy and I approve of this post. But you don't have to.

  12. #10
    Quote Originally Posted by Zippyjuan View Post
    The employment rate is a measure of people looking for jobs. If you choose to stay at home and raise kids, you don't count in the unemployment figures. To count, you need to be unemployed and looking for work.

    Food used to be about a third of a family's budget. Today it is about eleven percent.
    Tell that to the DNC talking point where they say that men didn't want women to work because they were too stupid. This just means the public schools raise the kids, and they get all of the programming involved there.

  13. #11
    Quote Originally Posted by nikcers View Post
    Tell that to the DNC talking point where they say that men didn't want women to work because they were too stupid. This just means the public schools raise the kids, and they get all of the programming involved there.

    My dad (a conservative) would not allow my Mom to work even though she had a college degree and wanted to. She was top in her class and extremely bright. Her place was in the home he insisted.
    Quote Originally Posted by Swordsmyth View Post
    The quality seems to have dropped significantly since I came here, I guess you get what you pay for.
    "There is always a tweet. That has become accepted fact in the Trump presidency: For every pronouncement the President makes, there is at least one tweet from his past that directly contradicts his current view." -CNN

    I am Zippy and I approve of this post. But you don't have to.

  14. #12
    Quote Originally Posted by Zippyjuan View Post
    The employment rate is a measure of people looking for jobs. If you choose to stay at home and raise kids, you don't count in the unemployment figures. To count, you need to be unemployed and looking for work.

    Food used to be about a quarter of a family's budget. Today it is about ten percent. People have found other things to spend their money on.

    What about the California 4000 dollar rents?? They have raised rent constantly despite all of the economic booms artificially. The houses and land got sold to the banks for pennies on the dollar and now they raise rents on people living in apartment and mobile home parks because they can raise the rents on the houses to whatever they want.

  15. #13
    Quote Originally Posted by nikcers View Post
    What about the California 4000 dollar rents?? They have raised rent constantly despite all of the economic booms artificially. The housees and land got sold to the banks for pennies on the dollar and now they raise rents on people living in apartment and mobile home parks because they can raise the rents on the houses to whatever they want.
    Supply and demand. Too many people want to live there due to weather and high paying jobs. Homes don't sell or rent for high prices unless somebody is willing and able to pay that price.
    Quote Originally Posted by Swordsmyth View Post
    The quality seems to have dropped significantly since I came here, I guess you get what you pay for.
    "There is always a tweet. That has become accepted fact in the Trump presidency: For every pronouncement the President makes, there is at least one tweet from his past that directly contradicts his current view." -CNN

    I am Zippy and I approve of this post. But you don't have to.

  16. #14
    Quote Originally Posted by Zippyjuan View Post
    My dad (a conservative) would not allow my Mom to work even though she had a college degree and wanted to. She was top in her class and extremely bright. Her place was in the home he insisted.
    You were probably way ahead of kids where both parents were working all day intellectually and emotionally I would wager.

  17. #15
    Quote Originally Posted by Zippyjuan View Post
    Supply and demand. Too many people want to live there due to weather and high paying jobs.
    yeah but you gotta choose rent or food, they have all these subsidization of food costs and more and more homeless every day.

  18. #16
    Quote Originally Posted by nikcers View Post
    yeah but you gotta choose rent or food, they have all these subsidization of food costs and more and more homeless every day.
    It is easier to live homeless where the weather is nice. You don't risk freezing to death at night in winter. All major cities have homelessness.
    Quote Originally Posted by Swordsmyth View Post
    The quality seems to have dropped significantly since I came here, I guess you get what you pay for.
    "There is always a tweet. That has become accepted fact in the Trump presidency: For every pronouncement the President makes, there is at least one tweet from his past that directly contradicts his current view." -CNN

    I am Zippy and I approve of this post. But you don't have to.



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  20. #17
    Quote Originally Posted by Zippyjuan View Post
    It is easier to live homeless where the weather is nice. You don't risk freezing to death at night in winter. All major cities have homelessness.
    When I was a kid it was illegal when the MOB ran Vegas we had no homeless LOL.

  21. #18
    Quote Originally Posted by nikcers View Post
    When I was a kid it was illegal when the MOB ran Vegas we had no homeless LOL.
    They are everywhere. Just harder to see in some places.
    Quote Originally Posted by Swordsmyth View Post
    The quality seems to have dropped significantly since I came here, I guess you get what you pay for.
    "There is always a tweet. That has become accepted fact in the Trump presidency: For every pronouncement the President makes, there is at least one tweet from his past that directly contradicts his current view." -CNN

    I am Zippy and I approve of this post. But you don't have to.

  22. #19
    Quote Originally Posted by Zippyjuan View Post
    It is easier to live homeless where the weather is nice. You don't risk freezing to death at night in winter. All major cities have homelessness.
    Absolutely... Being homeless in better weather is a much better alternative to being homeless anywhere else...
    “The ultimate test of a moral society is the kind of world it leaves to its children.” ~ Dietrich Bonhoeffer

  23. #20
    Quote Originally Posted by Zippyjuan View Post
    They are everywhere. Just harder to see in some places.
    Oh yeah I was joking there, we have a whole underground homeless city in Las Vegas. They always wash up when we have flash floods in the summer. I remember stories about people getting picked up for not having money in their pocket and being shipped off into other states. The mob didn't like people from other states coming here losing all of their money and then never going back home.

  24. #21
    Quote Originally Posted by Zippyjuan View Post
    My dad (a conservative) would not allow my Mom to work even though she had a college degree and wanted to. She was top in her class and extremely bright. Her place was in the home he insisted.
    Sounds like she wasn't bright enough to marry well. The perpetual victim. I am shocked.
    *******

    I didn't start out thinking that anti-vax people were fools or impervious to reason, it's from my experience here that I now think that.
    - AmyPi 2014 (RIP)

    Anti-vaxxers, responsible for a 30 percent uptick in totally preventable diseases in the world, have blood on their hands. They shouldn't be considered civilized members of society. If they refuse to listen to a century of scientific studies confirming time and time again that vaccination is an unquestionable good for humanity, then it's time for us to start treating anti-vaxxers as what they are: dangerous and worthy of shame and condemnation. If we can't convince anti-vaxxers to change their minds, we must attach enough social stigma to the delusion that agnostics cease to join them.

  25. #22
    Quote Originally Posted by angelatc View Post
    Sounds like she wasn't bright enough to marry well. The perpetual victim. I am shocked.
    Either that or she didn't have the fear of god put into her that if they don't work they will go hungry or homeless or if they don't work its because the males in society are oppressing them not because they chose not to.

  26. #23
    Quote Originally Posted by nikcers View Post
    Oh yeah I was joking there, we have a whole underground homeless city in Las Vegas. They always wash up when we have flash floods in the summer. I remember stories about people getting picked up for not having money in their pocket and being shipped off into other states. The mob didn't like people from other states coming here losing all of their money and then never going back home.
    I lived in Vegas for awhile, out on East Owens. The problem with Vegas when judging homeless is that it is hard to judge who is homeless because of true hard luck economics and those who are homeless because their personal addictions put them there.
    “The ultimate test of a moral society is the kind of world it leaves to its children.” ~ Dietrich Bonhoeffer

  27. #24
    Quote Originally Posted by ATruepatriot View Post
    Absolutely... Being homeless in better weather is a much better alternative to being homeless anywhere else...
    You just got to look at the whole unemployment explosion in the 2008 recession and you can see a lot of people who chose not to work because they had that as an option not because they didn't want to work for less of a wage than before but because unemployment was an option.



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  29. #25
    Quote Originally Posted by angelatc View Post
    Sounds like she wasn't bright enough to marry well. The perpetual victim. I am shocked.
    She did not know that when they got married. He was considered a "catch" and was smart and talented as well. He was an engineer and also artistically skilled.
    Last edited by Zippyjuan; 05-26-2019 at 12:47 PM.
    Quote Originally Posted by Swordsmyth View Post
    The quality seems to have dropped significantly since I came here, I guess you get what you pay for.
    "There is always a tweet. That has become accepted fact in the Trump presidency: For every pronouncement the President makes, there is at least one tweet from his past that directly contradicts his current view." -CNN

    I am Zippy and I approve of this post. But you don't have to.

  30. #26
    Quote Originally Posted by Zippyjuan View Post
    She did not know that when they got married. He was considered a "catch" and was smart and talented as well.
    I know lots of married women who would love to have a catch like your dad.

  31. #27
    Quote Originally Posted by ATruepatriot View Post
    Absolutely... Being homeless in better weather is a much better alternative to being homeless anywhere else...
    IDK. I would prefer a temperate climate. But after reading the PDF book regarding getting back to nature written in 1904 it appears you can acclimate to the cold and cold is good for you. I would opt for a nicer climate. I think I would get myself a one way ticket to Hawaii. Then build a floating raft that is small enough that it doesn't need registration. I wouldn't go for the seasteader concept of 12 miles out. I would go for the close to shore on the calm side of the island. The idea is that I could have my personal space and swim to shore to panhandle, peddle, and or scrounge. Sleep on the raft when the weather permits away from the other homeless bums.

  32. #28

  33. #29
    Quote Originally Posted by Zippyjuan View Post
    She did not know that when they got married.
    Like I said...
    *******

    I didn't start out thinking that anti-vax people were fools or impervious to reason, it's from my experience here that I now think that.
    - AmyPi 2014 (RIP)

    Anti-vaxxers, responsible for a 30 percent uptick in totally preventable diseases in the world, have blood on their hands. They shouldn't be considered civilized members of society. If they refuse to listen to a century of scientific studies confirming time and time again that vaccination is an unquestionable good for humanity, then it's time for us to start treating anti-vaxxers as what they are: dangerous and worthy of shame and condemnation. If we can't convince anti-vaxxers to change their minds, we must attach enough social stigma to the delusion that agnostics cease to join them.

  34. #30
    Quote Originally Posted by ATruepatriot View Post
    I lived in Vegas for awhile, out on East Owens. The problem with Vegas when judging homeless is that it is hard to judge who is homeless because of true hard luck economics and those who are homeless because their personal addictions put them there.
    Yeah there was a time after the big recession and mortgage collopase where there were a lot of well off people who were temporarily going to the local bood bank who were working and paying off their mortgage but still needed food because they were going hungry otherwise. My dad ran one of the food banks until he passed away but he was always telling me about the people coming in there and some of them would steal from other hungry people there but others were just down on their luck, some of them were veterans with PTSD, some of them were homeless because they had lost their family in the middle east wars and had no one else to help them out. Those were the ones that he felt bad for, you could always tell the difference between the guy who $#@!ed over everyone they know and the person who just doesn't know anyone or have any sort of family.

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