Isn’t Inflation Much Larger Than 2%?

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CoastalWinds
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Isn’t Inflation Much Larger Than 2%?

Post by CoastalWinds »

As we watch this stock market melt up and experience an unemployment rate that hovers near record lows, it seems like the fed funds rate should be raised. The main reason I hear for why it is being held so low (and juicing the economy further, possibly blowing asset bubbles) is because “inflation is running below the 2% target.”

But is it??

When I consider the things that constitute the largest part of most family budgets, and are also necessities in most cases, most of them have been going up at 5-10% per year for several years now. These include:

House prices
Rents
Health care (premiums, increasing deductibles and costs)
College tuition
Food
Water / Sewer

So how on earth is the Government concluding that inflation is less than 2%? Are they using the CPI-TP (CPI for toilet paper)?
Last edited by CoastalWinds on Thu Jan 16, 2020 10:25 pm, edited 3 times in total.
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JoMoney
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Re: Inflation is much > 2%

Post by JoMoney »

The Fed doesn't calculate inflation. The Bureau of Labor and Statistics does.
Their methodology and data they use is available to review.

... but I hear you, I remember when McDonalds had 2 for $2 Quarter Pounders
Now they want 2 for $5 :annoyed
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Re: Inflation is much > 2%

Post by samirol »

It is worth reading the methodology behind CPI:

https://www.bls.gov/cpi/questions-and-answers.htm

Here are a few quotes that answer the concerns you raised:

The CPI market basket is developed from detailed expenditure information provided by families and individuals on what they actually bought. There is a time lag between the expenditure survey and its use in the CPI. For example, CPI data in 2016 and 2017 was based on data collected from the Consumer Expenditure Surveys for 2013 and 2014. In each of those years, about 24,000consumers from around the country provided information each quarter on their spending habits in the interview survey. To collect information on frequently purchased items, such as food and personal care products, another 12,000consumers in each of these years kept diaries listing everything they bought during a 2-week period.

Over the 2 year period, then, expenditure information came from approximately 24,000 weekly diaries and 48,000 quarterly interviews used to determine the importance, or weight, of the item categories in the CPI index structure.

[...]

The CPI does not necessarily measure your own experience with price change. It is important to understand that BLS bases the market baskets and pricing procedures for the CPI-U and CPI-W populations on the experience of the relevant average household, not of any specific family or individual. For example, if you spend a larger-than-average share of your budget on medical expenses, and medical care costs are increasing more rapidly than the cost of other items in the CPI market basket, your personal rate of inflation may exceed the increase in the CPI. Conversely, if you heat your home with solar energy, and fuel prices are rising more rapidly than other items, you may experience less inflation than the general population does. A national average reflects millions of individual price experiences; it seldom mirrors a particular consumer's experience.
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Re: Inflation is much > 2%

Post by rascott »

CoastalWinds wrote: Thu Jan 16, 2020 10:16 pm As we watch this stock market melt up and experience an unemployment rate that hovers near record lows, it seems like the fed funds rate should be raised. The main reason it is being held low (and juicing the economy further, possibly blowing asset bubbles) is because “inflation is running below the 2% target.”

But is it?

When I consider the things that constitute the largest part of most family budgets, and are also necessities in most cases, most of them have been going up at 5-10% per year for several years now. These include:

House prices
Rents
Health care (premiums, increasing deductibles and costs)
College tuition
Food
Water / Sewer

So how on earth is the Fed concluding that inflation is less than 2%? Are they using the CPI-TP (CPI for toilet paper)?


Some things go up.... others get cheaper. Gasoline is less than it was 15 years ago. TVs are dirt cheap, e.t.c.... my large state college actually charges only nominally more than it did 15 years ago. Colleges have done a pretty good job of containing costs in the last decade.


I have not noticed anywhere near 5-10% annual increases in costs. Perhaps in rents/ housing.... but that's also a recovery from a huge bust.

A lot of these things are very individual and/ or geographically based. It's a big country.... and many of these things are local.
Last edited by rascott on Thu Jan 16, 2020 10:28 pm, edited 1 time in total.
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TheTimeLord
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Re: Isn’t Inflation Much Larger Than 2%?

Post by TheTimeLord »

CoastalWinds wrote: Thu Jan 16, 2020 10:16 pm As we watch this stock market melt up and experience an unemployment rate that hovers near record lows, it seems like the fed funds rate should be raised. The main reason I hear for why it is being held so low (and juicing the economy further, possibly blowing asset bubbles) is because “inflation is running below the 2% target.”

But is it??

When I consider the things that constitute the largest part of most family budgets, and are also necessities in most cases, most of them have been going up at 5-10% per year for several years now. These include:

House prices
Rents
Health care (premiums, increasing deductibles and costs)
College tuition
Food
Water / Sewer

So how on earth is the Government concluding that inflation is less than 2%? Are they using the CPI-TP (CPI for toilet paper)?
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dukeblue219
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Re: Isn’t Inflation Much Larger Than 2%?

Post by dukeblue219 »

5-10 percent (call it an average of 7.5%) means prices doubled since 2011. I cant think of much that's truly doubled in price since 2011.
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Re: Isn’t Inflation Much Larger Than 2%?

Post by z3r0c00l »

Purely personal experience, but my cost of living has barely increased in 10 years. Food has gone up a bit, maybe 2-3% per year, as has my rent. Lots of expenses have dropped, for example I no longer pay for cable TV or phone, so that saves $150 a month at least. Clothing is cheaper, if anything. Generic sundries at Target half the price of the name brands I used to buy. So no, 2% inflation feels about right.
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CoastalWinds
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Re: Isn’t Inflation Much Larger Than 2%?

Post by CoastalWinds »

dukeblue219 wrote: Thu Jan 16, 2020 10:34 pm 5-10 percent (call it an average of 7.5%) means prices doubled since 2011. I cant think of much that's truly doubled in price since 2011.
I can:

-Health insurance premium (250/mo -> 500/mo for silver plan)
-Rent (900/mo -> 1,800/mo for 1-BD)
-Housing prices (400K -> 800K median)

But I guess these are small potatoes.
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Re: Inflation is much > 2%

Post by TomCat96 »

JoMoney wrote: Thu Jan 16, 2020 10:23 pm The Fed doesn't calculate inflation. The Bureau of Labor and Statistics does.
Their methodology and data they use is available to review.

... but I hear you, I remember when McDonalds had 2 for $2 Quarter Pounders
Now they want 2 for $5 :annoyed
I believe the federal reserve computes their version of the CPI, which is the PCE, personal consumer expenditures.

https://www.federalreserve.gov/econres/ ... 190802.htm

But I believe OP is absolutely correct: Inflation is much larger than 2%
Back when I had gotten my first job before the explosion in housing prices around 2003, friends of mine who a year or so ahead of me were able to place a down payment and ride the wave up in housing. Those of us who missed the jump up were caught in a situation where housing was substantially less affordable.

I knew then that the inflation computations were either wrong, or useless to me. Wrong in that they dramatically understated inflation; useless to me in that the 2-3% number was completely irrelevant to the affordability of things in my life even if someone could academically prove it was correct.

At this point I neither want nor need to argue in some intangible academic forum whether or not the "true" inflation by the CPI or PCE is accurately stated. What matters is that a 2-3% increase annually would not provide me with adequate protection of the purchasing power of my money with respect to what I want or need to buy--housing, housing improvements, car, electronics.

In other words, for all intents and purposes, with respect to my personal "basket" of consumables, inflation has far exceeded what the government--the fed or the bureau of labor and statistics has stated. For this reason among many others, I am 100% stocks. I find that stocks have provided me with adequate growth in spite of the inflation of the services I intend to purchase later down the line.
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Re: Isn’t Inflation Much Larger Than 2%?

Post by sport »

CoastalWinds wrote: Thu Jan 16, 2020 10:34 pm
dukeblue219 wrote: Thu Jan 16, 2020 10:34 pm 5-10 percent (call it an average of 7.5%) means prices doubled since 2011. I cant think of much that's truly doubled in price since 2011.
I can:

-Health insurance premium (250/mo -> 500/mo for silver plan)
-Rent (900/mo -> 1,800/mo for 1-BD)
-Housing prices (400K -> 800K median)

But I guess these are small potatoes.
Rent and housing prices are very different in different parts of the country and even in different neighborhoods in the same general area. In my area 400K gets you a McMansion. Median housing would be about 150K (my estimate). We bought our house when it was new in 2006 for 295K. The county has it assessed now at 265K. So, it all depends...
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Re: Isn’t Inflation Much Larger Than 2%?

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Svensk Anga
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Re: Isn’t Inflation Much Larger Than 2%?

Post by Svensk Anga »

I track our spending and it is flat. It doesn't feel like our personal CPI basket of goods has shrunk, so I think inflation is low. I could see if one was living in a big city on either coast where housing especially is expensive, the perception may be different.
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Re: Isn’t Inflation Much Larger Than 2%?

Post by abuss368 »

Inflation can have a smaller or larger impact to individual. This is known as personal inflation. College, healthcare, gas. Different for everyone.
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Re: Isn’t Inflation Much Larger Than 2%?

Post by LittleMaggieMae »

Outside of Houses, Rent, Healthcare it seems to me Restaurant Food, various Entertainment expenses (movies, theater, sports, etc),and the price of cars have gone up dramatically.

At the grocery store - actual food products (like staple ingredients and fruit/veggies) have staid kind of steady (even if the amount of product in the package has decreased)... all of the other stuff at the grocery is outrageously priced as prices have gone up AlOT

When shopping for a new refrigerator 2 years ago - $1200 got me a so-so model that I will be amazed if it lasts 5 years - it replaced a 20 year old top of the line $1200 refrigerator. I had to replace a "standard" stove at my rental (it was 18 years old) and the crappy stoves were $500.00 -ish... the nicer (not Viking or Wolf) seemed like better quality were in the $800 range. Same thing with mattresses - yeah, there are plenty in mid range but they aren't gonna last you the 8 years (or 10 years or older mattresses).

Basically, I'm noticing that I can get poorer quality stuff for the same price I paid in the past... I feel like that's "inflation" because I'm gonna have to replace the poorer quality stuff sooner rather than later. :(

I can't really speak to utilities - natural gas is really cheap right now. And in the last 2 years I replaced many old "energy hog" appliances and put in LED lights in my heavy use light fixtures. My electric bill dropped (when I replaced the Fridge) and has seemed to stay steady/dropped abit with the other changes. So, I'm just using less - rather than paying less for the same amount of usage.
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Re: Isn’t Inflation Much Larger Than 2%?

Post by tetractys »

Most of the hype for higher than BLS inflation measurements comes from gold trading interests.
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Re: Isn’t Inflation Much Larger Than 2%?

Post by AlohaJoe »

CoastalWinds wrote: Thu Jan 16, 2020 10:16 pm But is it??
Yes, it is.
So how on earth is the Government concluding that inflation is less than 2%? Are they using the CPI-TP (CPI for toilet paper)?
The BLS publishes their methodology and underlying data. You could read it and find out.

If the BLS were computing inflation wrong just imagine how much money those billionaire hedge funds could make buy buying TIPS right now and then releasing the data showing the BLS is lying and inflation is higher than claimed. They'd make hundreds of billions. Yet they haven't.......

Not to mention all the academics that could make their reputation on it (as the members of the Boskin Commission did in 1995) by publishing proof of such a thing.....

Then there's the non-governmental Billion Prices Project running at MIT that has failed to find evidence of this, despite running for years now.
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Re: Isn’t Inflation Much Larger Than 2%?

Post by Starfish »

dukeblue219 wrote: Thu Jan 16, 2020 10:34 pm 5-10 percent (call it an average of 7.5%) means prices doubled since 2011. I cant think of much that's truly doubled in price since 2011.
Close to double in my area: rents, restaurants, real estate.
I went to pizza place for lunch the other day, 2 slices of pizza, no soda, almost 15$. I used to pay half.
Healthcare is much worse that double, probably more like 100X.
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Re: Isn’t Inflation Much Larger Than 2%?

Post by Godot »

Starfish wrote: Fri Jan 17, 2020 12:33 am
dukeblue219 wrote: Thu Jan 16, 2020 10:34 pm 5-10 percent (call it an average of 7.5%) means prices doubled since 2011. I cant think of much that's truly doubled in price since 2011.

I went to pizza place for lunch the other day, 2 slices of pizza, no soda, almost 15$. I used to pay half.
Where does two slices of pizza cost 15$? Curious.
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Re: Isn’t Inflation Much Larger Than 2%?

Post by Starfish »

Godot wrote: Fri Jan 17, 2020 12:36 am
Starfish wrote: Fri Jan 17, 2020 12:33 am
dukeblue219 wrote: Thu Jan 16, 2020 10:34 pm 5-10 percent (call it an average of 7.5%) means prices doubled since 2011. I cant think of much that's truly doubled in price since 2011.

I went to pizza place for lunch the other day, 2 slices of pizza, no soda, almost 15$. I used to pay half.
Where does two slices of pizza cost 15$? Curious.
Bay area.
And it was not even good pizza. And is not even an expensive pizza place.
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FIREchief
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Re: Isn’t Inflation Much Larger Than 2%?

Post by FIREchief »

5% to 10% per year?! Really??
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Re: Isn’t Inflation Much Larger Than 2%?

Post by watchnerd »

Streaming videos is a heck of a lot cheaper than paying for cable was, we probably saved $100/month.

My wife can call a landline in Japan for 0 cents per minute from her cellphone plan. Try that 30 years ago.

Our hybird SUV gets way better gas mileage than my first Japanese economy car.

Gasoline was cheaper in November, 2019 than between Jan, 2011 and December, 2014.

The Big Mac Index shows a Jan, 2020 price of $5.67, versus $5.74 in Jul, 2019
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Re: Isn’t Inflation Much Larger Than 2%?

Post by Sheepdog »

My inflation is not more than 2%.
My select expenses (not including taxes, donations, house maintenance.)
...........................2019.....2018....... 2017
groceries................6691.....6035....... 6015
restaurant,,,,,,,,,,,,,, 3461.....3416.......3218
medical..................2217.....2941........2821
med insurance..........2184.....2171....... 2173
other med &dental....12259.....9430........5418
cable.....................1247.....1325,,,,,,, 1368
gasoline.................1056.....1092........1131
utilities..................3708.....3451........3567
entertainment..........3512.....3444........3606
Total of all spending 56594....49906.......49526

Subtracting medical and dental my total spending was
2019.....39934, 2018......35364 2017.....39114
Last edited by Sheepdog on Fri Jan 17, 2020 2:35 am, edited 1 time in total.
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Re: Isn’t Inflation Much Larger Than 2%?

Post by Godot »

Starfish wrote: Fri Jan 17, 2020 12:39 am
Godot wrote: Fri Jan 17, 2020 12:36 am
Starfish wrote: Fri Jan 17, 2020 12:33 am
dukeblue219 wrote: Thu Jan 16, 2020 10:34 pm 5-10 percent (call it an average of 7.5%) means prices doubled since 2011. I cant think of much that's truly doubled in price since 2011.

I went to pizza place for lunch the other day, 2 slices of pizza, no soda, almost 15$. I used to pay half.
Where does two slices of pizza cost 15$? Curious.
Bay area.
And it was not even good pizza. And is not even an expensive pizza place.
Ugh, nothing worse than pricey bad pizza.Time to make your own!
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Re: Isn’t Inflation Much Larger Than 2%?

Post by Portfolio7 »

CoastalWinds wrote: Thu Jan 16, 2020 10:16 pm As we watch this stock market melt up and experience an unemployment rate that hovers near record lows, it seems like the fed funds rate should be raised. The main reason I hear for why it is being held so low (and juicing the economy further, possibly blowing asset bubbles) is because “inflation is running below the 2% target.”

But is it??

When I consider the things that constitute the largest part of most family budgets, and are also necessities in most cases, most of them have been going up at 5-10% per year for several years now. These include:

House prices
Rents
Health care (premiums, increasing deductibles and costs)
College tuition
Food
Water / Sewer

So how on earth is the Government concluding that inflation is less than 2%? Are they using the CPI-TP (CPI for toilet paper)?
As Todd Harrison of Minyanville used to say, we have deflation in things we want, and inflation in things we need. I think that's almost as true now as when he said it back before the GFC. Realize that I can buy a base Camry now for about 15% less in inflation adjusted dollars than when I bought one in 1995.
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Re: Inflation is much > 2%

Post by ChrisBenn »

rascott wrote: Thu Jan 16, 2020 10:26 pm ... my large state college actually charges only nominally more than it did 15 years ago. Colleges have done a pretty good job of containing costs in the last decade. ...
I don't think this is correct; according to https://nces.ed.gov/fastfacts/display.asp?id=76. college costs for four year institutions, in real dollars (inflation normalized), have still increased 40% from 2006 to 2016 (2016 ->2017 was the last year of stats there)
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Re: Isn’t Inflation Much Larger Than 2%?

Post by Tim_in_GA »

The largest part of my expenses is my mortgage (about 40%). It doesn't change year to year. I've been tracking expenses for 20 years and haven't seen much personal inflation yet (less than 1%). Sure, home prices have went up and I am living in my 6th and most expensive house. But my mortgage payment has hardly changed because I'm always putting more money down and not choosing a larger, nicer home.
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Re: Isn’t Inflation Much Larger Than 2%?

Post by financeperchance »

LittleMaggieMae wrote: Thu Jan 16, 2020 11:26 pm the price of cars have gone up dramatically.
Of course you are right, but according to the official CPI figures, the price of new cars is about the same as it was in December 1996:
https://fred.stlouisfed.org/series/CUUR0000SETA01

3.724% of the CPI-U is weighted on this. I can never get a straight answer from anyone who believes the CPI is accurate how they can explain this new car pricing factor, when it's easily refuted by looking up MSRPs from 1996 and 1997 and comparing them with today.
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Re: Isn’t Inflation Much Larger Than 2%?

Post by AlohaJoe »

financeperchance wrote: Fri Jan 17, 2020 8:15 am
3.724% of the CPI-U is weighted on this. I can never get a straight answer from anyone who believes the CPI is accurate how they can explain this new car pricing factor, when it's easily refuted by looking up MSRPs from 1996 and 1997 and comparing them with today.
What part of the BLS factsheet on "Measuring Price Change in the CPI: New Vehicles" along with the "Guidelines for Quality Adjustment of New Vehicles Prices" do you feel is not a straight answer?
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Re: Isn’t Inflation Much Larger Than 2%?

Post by simplesimon »

Starfish wrote: Fri Jan 17, 2020 12:39 am
Godot wrote: Fri Jan 17, 2020 12:36 am
Starfish wrote: Fri Jan 17, 2020 12:33 am
dukeblue219 wrote: Thu Jan 16, 2020 10:34 pm 5-10 percent (call it an average of 7.5%) means prices doubled since 2011. I cant think of much that's truly doubled in price since 2011.

I went to pizza place for lunch the other day, 2 slices of pizza, no soda, almost 15$. I used to pay half.
Where does two slices of pizza cost 15$? Curious.
Bay area.
And it was not even good pizza. And is not even an expensive pizza place.
Get a whole Costco pizza for $10 or a big slice for $2.
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Re: Isn’t Inflation Much Larger Than 2%?

Post by simplesimon »

CoastalWinds wrote: Thu Jan 16, 2020 10:34 pm
dukeblue219 wrote: Thu Jan 16, 2020 10:34 pm 5-10 percent (call it an average of 7.5%) means prices doubled since 2011. I cant think of much that's truly doubled in price since 2011.
I can:

-Health insurance premium (250/mo -> 500/mo for silver plan)
-Rent (900/mo -> 1,800/mo for 1-BD)
-Housing prices (400K -> 800K median)

But I guess these are small potatoes.
You don't live like most of America if the median home price is $800k. Look beyond the bubble you live in.
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Re: Isn’t Inflation Much Larger Than 2%?

Post by TN_Boy »

CoastalWinds wrote: Thu Jan 16, 2020 10:34 pm
dukeblue219 wrote: Thu Jan 16, 2020 10:34 pm 5-10 percent (call it an average of 7.5%) means prices doubled since 2011. I cant think of much that's truly doubled in price since 2011.
I can:

-Health insurance premium (250/mo -> 500/mo for silver plan)
-Rent (900/mo -> 1,800/mo for 1-BD)
-Housing prices (400K -> 800K median)

But I guess these are small potatoes.
We track our overall spending (not so much the details) as part of retirement planning.

Our nominal spending hasn't changed that much over the last decade and we are doing all the same things. So I can't see any major inflation problems.

It's impossible that our personal inflation rate has been anywhere near 5%.

Health insurance is more expensive. Housing prices have not doubled in (most of) our area since 2011, though as we have a paid off house, that would not affect us unless/until we move.

If things like housing and medical insurance are really big items in your budget, yes, price increases have probably hit you harder than the overall official inflation rate.
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Re: Isn’t Inflation Much Larger Than 2%?

Post by JoeRetire »

CoastalWinds wrote: Thu Jan 16, 2020 10:16 pmWhen I consider the things that constitute the largest part of most family budgets, and are also necessities in most cases, most of them have been going up at 5-10% per year for several years now. These include:

House prices
Rents
Health care (premiums, increasing deductibles and costs)
College tuition
Food
Water / Sewer

So how on earth is the Government concluding that inflation is less than 2%? Are they using the CPI-TP (CPI for toilet paper)?
The "official inflation number" and the rising cost for what you pay for the things that are important to you are two different things.

For example, the rising cost of college tuition is no longer a directly meaningful number for me. Rent increases haven't been important to me for a long time.

Inflation target is a national number. What I need to pay is personal.

Apples and oranges.
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Re: Isn’t Inflation Much Larger Than 2%?

Post by Jags4186 »

JoeRetire wrote: Fri Jan 17, 2020 8:45 am
CoastalWinds wrote: Thu Jan 16, 2020 10:16 pmWhen I consider the things that constitute the largest part of most family budgets, and are also necessities in most cases, most of them have been going up at 5-10% per year for several years now. These include:

House prices
Rents
Health care (premiums, increasing deductibles and costs)
College tuition
Food
Water / Sewer

So how on earth is the Government concluding that inflation is less than 2%? Are they using the CPI-TP (CPI for toilet paper)?
The "official inflation number" and the rising cost for what you pay for the things that are important to you are two different things.

For example, the rising cost of college tuition is no longer a directly meaningful number for me. Rent increases haven't been important to me for a long time.

Inflation target is a national number. What I need to pay is personal.

Apples and oranges.
Agree. It's also easy to say things like houses or rent are 2x what they were 10 years ago. Maybe where you live. But there are many places where houses are equal to or less than they were 10 years ago. It's incredibly difficult to peg down an inflation number for a country the size of the US when there are so many regional and local variances.
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Re: Isn’t Inflation Much Larger Than 2%?

Post by z3r0c00l »

Jags4186 wrote: Fri Jan 17, 2020 8:51 am
JoeRetire wrote: Fri Jan 17, 2020 8:45 am
CoastalWinds wrote: Thu Jan 16, 2020 10:16 pmWhen I consider the things that constitute the largest part of most family budgets, and are also necessities in most cases, most of them have been going up at 5-10% per year for several years now. These include:

House prices
Rents
Health care (premiums, increasing deductibles and costs)
College tuition
Food
Water / Sewer

So how on earth is the Government concluding that inflation is less than 2%? Are they using the CPI-TP (CPI for toilet paper)?
The "official inflation number" and the rising cost for what you pay for the things that are important to you are two different things.

For example, the rising cost of college tuition is no longer a directly meaningful number for me. Rent increases haven't been important to me for a long time.

Inflation target is a national number. What I need to pay is personal.

Apples and oranges.
Agree. It's also easy to say things like houses or rent are 2x what they were 10 years ago. Maybe where you live. But there are many places where houses are equal to or less than they were 10 years ago. It's incredibly difficult to peg down an inflation number for a country the size of the US when there are so many regional and local variances.
In NYC housing prices are stagnant or have declined. There are political or behavioral reasons why people want to think that official inflation numbers are wrong, or that unemployment numbers are made up. It is this kind of cynicism mixed with a lack of effort put into actually understanding these numbers. They are limited in scope but not wrong, and inflation has been very muted over the past decade, a very good thing if you lived through the 70's.
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Re: Isn’t Inflation Much Larger Than 2%?

Post by aristotelian »

Here in flyover country, housing has probably not beaten inflation over the last 10-20 years. Health care and college are more expensive, but you can get a supercomputer that fits in your pocket for $100 and oil is down since 2008.
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JoeRetire
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Re: Isn’t Inflation Much Larger Than 2%?

Post by JoeRetire »

Jags4186 wrote: Fri Jan 17, 2020 8:51 am Agree. It's also easy to say things like houses or rent are 2x what they were 10 years ago. Maybe where you live. But there are many places where houses are equal to or less than they were 10 years ago. It's incredibly difficult to peg down an inflation number for a country the size of the US when there are so many regional and local variances.
Housing prices are hyper-local.

Anyone who thinks the prices of housing only goes up hasn't lived long enough, or doesn't know enough people from different parts of the country.

I remember sitting next to someone on a plane trip many years ago. As we went over Houston, he told me how he had purchased his home in the Houston area while the market was hot, only to see the bottom fall out and then have to sell when he was transferred to the East Coast. I don't remember the year...

In my part of the country, we purchased a second home when the home prices in our beach community had dipped over 20%. The previous owners had tried to sell for more than a year, but had to keep reducing the price. In the past 8 years, the local market has risen significantly. If we were to sell today, it would be listed for 50% more than we paid. Down and Up. Up and Down.
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stan1
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Re: Isn’t Inflation Much Larger Than 2%?

Post by stan1 »

It is a mistake to blindly apply statistical or actuarial measures to your personal situation.

Here's another example. I put my date of birth into an actuarial chart my life expectancy is 82.

Have I had a heart attack or cancer? Am I overweight or do I exercise? Am I an alcoholic?

What is the actual likelihood I will die at 82? Is it more likely I will die at 72 or 92? Does that actuarial life expectancy of 82 have any relevance to me at all other than maybe for buying insurance where the insurer pools risks among a large number of people? If I was thinking about when to claim social security I would have to objectively evaluate my health and reach a conclusion about the likelihood I would live into my 80s.
Stormbringer
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Re: Isn’t Inflation Much Larger Than 2%?

Post by Stormbringer »

Inflation is an odd thing, because everyone experiences their own personal inflation rate based on their purchasing patterns.
  • For a young person, inflation is a big deal because education and housing are something they need and are rapidly getting more expensive.
  • For an older person, inflation is those items may not be as big a deal because they have already locked in lower prices.
  • A healthy person who rarely visits the doctor doesn't experience healthcare inflation to the same degree as someone who burns through their ever-increasing deductible every year.
  • For a person who spends most of their money on electronics, they have experienced deflation.
Also, I don't know if measures of inflation capture all the things that are now free but used to cost money. It used to be that many families bought a set of encyclopedias. Now people just use Wikipedia. Investment advice is free at Bogleheads. You can get all the news you can stomach online for mostly free. Nobody pays long distance charges anymore.

Lastly, I don't know if inflation captures quality improvements. A computer costs less than it did 25 years ago, but it is also thousands of times more powerful. TVs are better. Same with phones. Anyone who drove an early 1980s clunker knows that cars have come a long way, etc.
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Re: Isn’t Inflation Much Larger Than 2%?

Post by ARoseByAnyOtherName »

Starfish wrote: Fri Jan 17, 2020 12:33 am I went to pizza place for lunch the other day, 2 slices of pizza, no soda, almost 15$. I used to pay half.
That’s not inflation, that’s you making a horrible choice of where to get pizza.
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JoeRetire
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Re: Isn’t Inflation Much Larger Than 2%?

Post by JoeRetire »

ARoseByAnyOtherName wrote: Fri Jan 17, 2020 9:26 am
Starfish wrote: Fri Jan 17, 2020 12:33 am I went to pizza place for lunch the other day, 2 slices of pizza, no soda, almost 15$. I used to pay half.
That’s not inflation, that’s you making a horrible choice of where to get pizza.
Or purchasing much fancier pizza that you used to.
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Re: Isn’t Inflation Much Larger Than 2%?

Post by Jags4186 »

Starfish wrote: Fri Jan 17, 2020 12:33 am
dukeblue219 wrote: Thu Jan 16, 2020 10:34 pm 5-10 percent (call it an average of 7.5%) means prices doubled since 2011. I cant think of much that's truly doubled in price since 2011.
Close to double in my area: rents, restaurants, real estate.
I went to pizza place for lunch the other day, 2 slices of pizza, no soda, almost 15$. I used to pay half.
Healthcare is much worse that double, probably more like 100X.
You can get 2 plain slices and a soda for $3 in Manhattan. Manhattan, NY. Not Manhattan, KS.
North Texas Cajun
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Re: Isn’t Inflation Much Larger Than 2%?

Post by North Texas Cajun »

CoastalWinds wrote: Thu Jan 16, 2020 10:16 pm As we watch this stock market melt up and experience an unemployment rate that hovers near record lows, it seems like the fed funds rate should be raised. The main reason I hear for why it is being held so low (and juicing the economy further, possibly blowing asset bubbles) is because “inflation is running below the 2% target.”

But is it??

When I consider the things that constitute the largest part of most family budgets, and are also necessities in most cases, most of them have been going up at 5-10% per year for several years now. These include:

House prices
Rents
Health care (premiums, increasing deductibles and costs)
College tuition
Food
Water / Sewer

So how on earth is the Government concluding that inflation is less than 2%? Are they using the CPI-TP (CPI for toilet paper)?
As many others have pointed out, your family budget is not likely what a large part of America spends. That’s particularly true for tuition (only a small part of the total population is in college at one time) and housing prices or rents (obvious that you live in an area with high housing costs).

A couple of points about health care:

Insurance premiums are not health care. But I guess some believe that is a suitable proxy. One issue about insurance premiums is that a very large part of the population pays zero or very low insurance premiums. As a medicare beneficiary, my out-of-pocket costs for health care/health insurance are likely far lower than those of a 50-year-old or a 30-year-old.

The quality of medical care and the amount of medical care consumed have gone up dramatically in the past 40 years. Innovations such as laparoscopic surgery, specialty pharmaceuticals, targeted cancer therapies, robotic surgery, 3d printed body parts, nanotechnology, and more are increasing greatly the survival rates from disease and the quality of life for the afflicted. At the same time, we in the U.S. are using more medical care than ever before - in large part due to the aging of the population.

As for automobiles, the quality - especially for safety features - continues to rise sharply. I used to but a new car every 8 to 10 years. Now I just cannot justify waiting that long, as the new safety features are too important for my family to defer.
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Re: Isn’t Inflation Much Larger Than 2%?

Post by JBTX »

Inflation really isn't that high over time if you think about it.

- house prices are considered investment and not consumer spending. But rent is. I think 35-40 years ago we paid about $500 a month for a two bedroom in college. About 20 years ago I think we paid about $1000. Now the place my daughter is staying for 2 bed is probably around $1100. Different places, but all fairly comparable MCOL locations.

- I bought a nissan maxima for $18k around 1990. Pretty much loaded at the time except for leather seats. Now you can get Altimas base price around $20k and I suspect those specs are at least as good as a maxima 30 years ago.


- a fast food combo may cost $8.00 now. It has crept up in recent years. But my recollection in the early 90s it was $5.00. That somewhere between 2 and 3 percent.

- remember around 1970 you could get a gallon of gasoline for about 30 cents. That would be about 4 percent inflation until now But after energy crisis it spiked up to about a dollar. That would be 2 percent until now.

- home energy prices have gone up, but in most places at a modest rate. Natural gas has kept a lid on prices. Our energy bills really don't seem materially higher than 20 years ago.
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Re: Isn’t Inflation Much Larger Than 2%?

Post by Workable Goblin »

JoeRetire wrote: Fri Jan 17, 2020 9:00 am I remember sitting next to someone on a plane trip many years ago. As we went over Houston, he told me how he had purchased his home in the Houston area while the market was hot, only to see the bottom fall out and then have to sell when he was transferred to the East Coast. I don't remember the year...
Probably in the mid-80s. The oil bust was a hell of a thing.
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Re: Isn’t Inflation Much Larger Than 2%?

Post by CoastalWinds »

simplesimon wrote: Fri Jan 17, 2020 8:26 am
Starfish wrote: Fri Jan 17, 2020 12:39 am
Godot wrote: Fri Jan 17, 2020 12:36 am
Starfish wrote: Fri Jan 17, 2020 12:33 am
dukeblue219 wrote: Thu Jan 16, 2020 10:34 pm 5-10 percent (call it an average of 7.5%) means prices doubled since 2011. I cant think of much that's truly doubled in price since 2011.

I went to pizza place for lunch the other day, 2 slices of pizza, no soda, almost 15$. I used to pay half.
Where does two slices of pizza cost 15$? Curious.
Bay area.
And it was not even good pizza. And is not even an expensive pizza place.
Get a whole Costco pizza for $10 or a big slice for $2.
Yea, because nothing says quality pizza like a Costco pizza. :oops:
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Re: Isn’t Inflation Much Larger Than 2%?

Post by gd »

The thread is way outnumbered by others discussing how to loosen up and spend more indulgently. This is a group whose affluence is increasing faster than society as a whole, discussing a subject that's really hard to be objective about.
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Re: Isn’t Inflation Much Larger Than 2%?

Post by GTBuzz »

CoastalWinds wrote: Thu Jan 16, 2020 10:34 pm
dukeblue219 wrote: Thu Jan 16, 2020 10:34 pm 5-10 percent (call it an average of 7.5%) means prices doubled since 2011. I cant think of much that's truly doubled in price since 2011.
I can:

-Health insurance premium (250/mo -> 500/mo for silver plan)
-Rent (900/mo -> 1,800/mo for 1-BD)
-Housing prices (400K -> 800K median)

But I guess these are small potatoes.
Silver plans did not exist in 2011. You can't compare the premium of underwritten insurance (2011) to guaranteed issue insurance (Silver plans in 2019).
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Re: Isn’t Inflation Much Larger Than 2%?

Post by Clever_Username »

CoastalWinds wrote: Fri Jan 17, 2020 10:42 am
Yea, because nothing says quality pizza like a Costco pizza. :oops:
I think it's pretty good as far as thin-crust style pizza goes. I'm in Southern California and I can think, offhand, of two good pizza places (Costco isn't one of the two, in case you're wondering), three if you count Papa Murphy's take-and-bake, and maybe another 2-3 on my "if I'm in that area, I'll go try it" list.

The items you listed in the first post:
CoastalWinds wrote: Thu Jan 16, 2020 10:16 pm House prices
Rents
Health care (premiums, increasing deductibles and costs)
College tuition
Food
Water / Sewer

So how on earth is the Government concluding that inflation is less than 2%? Are they using the CPI-TP (CPI for toilet paper)?
These really depend on where you live. In a large portion of the country, rents aren't increasing all that much. The issues with house prices and health care measuring were listed elsewhere. A small fraction of the country is paying college tuition -- which generally, I believe, does increase faster than inflation, but I know you don't think CPI means "everything went up in cost by this amount."

As for food, it's probably local and decision based again. I usually pay less than $1 for a dozen eggs, sometimes it creeps up to $1.50. I end up with a week's worth of breakfast for under $10.
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Re: Isn’t Inflation Much Larger Than 2%?

Post by adamthesmythe »

The actionable thing following from OP's post (if we agree with the claim about inflation)...

is...

market-time to take profits now. Then...I guess...buy gold.
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