Isn’t Inflation Much Larger Than 2%?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
MichCPA
Posts: 883
Joined: Fri Jul 06, 2018 9:06 pm

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

Post by MichCPA »

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.
I am beginning to think you view of inflation is heavily influenced by your local housing market. Those number aren't reflective of the country as a whole. Also, most manufactured goods and technology haven't seen much of an increase since 2011.
User avatar
nisiprius
Advisory Board
Posts: 41964
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

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

Post by nisiprius »

It is a pity that the former MIT "Billion Prices Project," which used to publish key results at no cost, is now available only at a price. This project works by scanning the Internet for price data and is thus a measure of prices and inflation that is significantly independent of the Bureau of Labor Statistics. Obvious issues of online prices are not a perfect random sample of prices in general. During the time that they were publishing their data, their results were in reasonably good accord with the BLS:

Our Public Data

Image

The online price index did show a little more inflation than the CPI, but nothing remotely like the gross differences claimed by certain unreliable sources.
Last edited by nisiprius on Fri Jan 17, 2020 1:48 pm, edited 1 time in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
North Texas Cajun
Posts: 228
Joined: Sun Jul 02, 2017 8:56 am

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

Post by North Texas Cajun »

gd wrote: Fri Jan 17, 2020 10:47 am 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.
Why is it hard to be objective about the rate of inflation? Is there anyone who would be more focused on inflation rate than those who are diligently trying to ensure that their spending capacity is maintained.

I agree that Boglehead readers are likely to be wealthier than the median household, though I’m not sure that means affluent. But inflation affects everyone - the poor, the middle class, and the financially independent. I have family members in each group, as I suspect most of us do. We are neither blind nor indifferent to the impact that rising costs would have on them.
Independent George
Posts: 890
Joined: Wed Feb 17, 2016 12:13 pm
Location: Chicago, IL, USA

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

Post by Independent George »

I've been tracking my expenses in Mint since 2007. There's how my actual spending has changed since then:

Food/Groceries: $254/month in 2007. $305/month in 2019 (1.54% annualized)
Electricity: $58/month in 2007, $67/month in 2019 (1.21%)
Cable/Internet: $62/month in 2007, $83/month (2.46%)

That said, a few expenses have gone way, way up.

Condo assessments: $379 in 2007, $704 in 2019 (7.10%)
Property Taxes (Annual): $2,650 in 2007, $4,100 in 2019 (3.70% annualized - but note that the property in question was worth $260k in 2007, and was appraised for $195k last year. If we go by % of FMV, property taxes effectively increased by 6.7% annually).
Income tax rate: 3% in 2007, 4.95% in 2019.

I switched to a high deductible insurance plan in 2017, so I don't have any direct comparables for healthcare, but the common thread in that the areas where costs have skyrocketed is that they all have to do with government (or government-like in the case of my condo association) spending. I don't own a car, but I understand auto related taxes & fees have likewise had a giant increase in the last few years.
TropikThunder
Posts: 2539
Joined: Sun Apr 03, 2016 5:41 pm

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

Post by TropikThunder »

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.
Again though, everything is local. Double-digit housing increases on the west coast are balanced out by low-single digit (if not zero) for lots of Midwest areas. Sure if you live in the Bay Area inflation is likely higher than the national estimate but you can’t make national policy based on just what happens in SF.
User avatar
greg24
Posts: 3926
Joined: Tue Feb 20, 2007 10:34 am

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

Post by greg24 »

nm nm
Last edited by greg24 on Fri Jan 17, 2020 5:09 pm, edited 1 time in total.
TropikThunder
Posts: 2539
Joined: Sun Apr 03, 2016 5:41 pm

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

Post by TropikThunder »

nisiprius wrote: Fri Jan 17, 2020 11:13 am It is a pity that the former MIT "Billion Prices Project," which used to publish key results at no cost, is now available only at a price.
Well yeah, cuz inflation. :P
User avatar
petercooperjr
Posts: 212
Joined: Tue Dec 18, 2007 9:24 am

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

Post by petercooperjr »

TropikThunder wrote: Fri Jan 17, 2020 11:46 am Sure if you live in the Bay Area inflation is likely higher than the national estimate but you can’t make national policy based on just what happens in SF.
And the BLS does publish region-specific CPI numbers. If I'm reading the data for San Francisco correctly, inflation has been over 3% there for the last several years. Whereas in the St. Louis area, it was 1.0% last year, and has been under 2% for several years.
SchruteB&B
Posts: 362
Joined: Mon Jul 02, 2018 7:48 am

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

Post by SchruteB&B »

TropikThunder wrote: Fri Jan 17, 2020 11:46 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.
Again though, everything is local. Double-digit housing increases on the west coast are balanced out by low-single digit (if not zero) for lots of Midwest areas. Sure if you live in the Bay Area inflation is likely higher than the national estimate but you can’t make national policy based on just what happens in SF.
Yes. OP your double digit increases are being offset by my horrible Midwestern market. Our house is worth less NOMINALLY than when we bought it 20 years ago. That is without adding in the remodeling and landscaping and inflation. If I account for those it’s a bloodbath.
chipperd
Posts: 732
Joined: Sat Sep 24, 2011 5:58 am

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

Post by chipperd »

Not sure why college was pointed out as well contained cost. The cost of college increases 1.2 to 2.1 times the cost of inflation annually. 8% per year per this article: https://www.finaid.org/savings/tuition-inflation.phtml
Raryn
Posts: 79
Joined: Sun Dec 01, 2013 9:39 am

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

Post by Raryn »

financeperchance wrote: Fri Jan 17, 2020 8:15 am
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.
Because you aren't comparing like cars.

A low-tier sedan in 1996 would be substantially less safe and have substantially fewer features than a 2020 model. If you compare a car in 1996 with equivalent features to a low-tier car today, prices have actually gone *down* for the equivalent car. Even something like a Camry costs about the same today as it did 20 years ago - despite todays Camry being substantially better. The CPI takes this into account as part of the "hedonic quality adjustment".

Those less safe, less reliable, worse gas mileage cars that you might have bought for $10k simply don't exist any longer due to federal (& state) regulations.

(If you dig down into the graph of vehicle inflation over time, prices for equivalent cars actually dropped considerably between the late 1990s and c. 2008 and have creeped back up to the mid 1990s levels today)
ScubaHogg
Posts: 714
Joined: Sun Nov 06, 2011 3:02 pm

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

Post by ScubaHogg »

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.
Are you suggesting housing prices have doubled nationwide in the last ten years? Link please
“Unexpected Returns dominate the Expected Returns” - Ken French
DB2
Posts: 928
Joined: Thu Jan 17, 2019 10:07 pm

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

Post by DB2 »

Independent George wrote: Fri Jan 17, 2020 11:30 am I've been tracking my expenses in Mint since 2007. There's how my actual spending has changed since then:

Food/Groceries: $254/month in 2007. $305/month in 2019 (1.54% annualized)
Electricity: $58/month in 2007, $67/month in 2019 (1.21%)
Cable/Internet: $62/month in 2007, $83/month (2.46%)

That said, a few expenses have gone way, way up.

Condo assessments: $379 in 2007, $704 in 2019 (7.10%)
Property Taxes (Annual): $2,650 in 2007, $4,100 in 2019 (3.70% annualized - but note that the property in question was worth $260k in 2007, and was appraised for $195k last year. If we go by % of FMV, property taxes effectively increased by 6.7% annually).
Income tax rate: 3% in 2007, 4.95% in 2019.

I switched to a high deductible insurance plan in 2017, so I don't have any direct comparables for healthcare, but the common thread in that the areas where costs have skyrocketed is that they all have to do with government (or government-like in the case of my condo association) spending. I don't own a car, but I understand auto related taxes & fees have likewise had a giant increase in the last few years.
Very cool to have tracked personal data like that.

I was looking at the property taxes of my home when I bought it in 2004. I'm paying notably less now and for my house payment in general since rates have dropped since that period and my refi.

I think health insurance is what really stands out for my greatest inflationary cost. I'm in a higher deductible plan as well to keep monthly premium down. However, since 2013, my plan has gone up about 160%. I am on an individual plan and have to be with my line of work. I shop around, but none of the new plans can be beat it (my plan was grandfathered in after the ACA outlawed it).
Last edited by DB2 on Fri Jan 17, 2020 12:27 pm, edited 1 time in total.
Ed_Sandwich
Posts: 163
Joined: Mon Mar 20, 2017 12:47 pm

Re: Inflation is much > 2%

Post by Ed_Sandwich »

ChrisBenn wrote: Fri Jan 17, 2020 6:23 am
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)
My school is now 220% more expensive than it was 15 years ago. It has gone up 15% per year, since my time there.

EDIT: It is a large state school.
Last edited by Ed_Sandwich on Fri Jan 17, 2020 12:27 pm, edited 1 time in total.
financeperchance
Posts: 256
Joined: Thu Nov 02, 2017 11:15 am

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

Post by financeperchance »

AlohaJoe wrote: Fri Jan 17, 2020 8:22 am
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?
1) The average new car is now $34,000, higher than it's ever been: https://www.motor1.com/news/380009/aver ... ice-34000/ Average cost of a car in 1997 was $16,900 http://www.thepeoplehistory.com/1997.html
2) Auto loans up 76% just in the past decade: https://wolfstreet.com/2019/08/13/auto- ... ince-2010/
Image

Yet somehow new car prices have not been growing since 1997, according to the official statistics. I understand that cars today are safer, and have more safety features, but I have no idea how this this doesn't seem a bit out of whack.
ScubaHogg
Posts: 714
Joined: Sun Nov 06, 2011 3:02 pm

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

Post by ScubaHogg »

My cell phone plan does more and is cheaper than 5 years ago.

I spend no more on food than 5 years ago.

My cars are cheaper and safer than cars I owned 15 years ago.

Lots of upper education places aren’t radically more expensive than they used to be, it just might not be the one you want.

If your housing prices have radically increased from 2007, there is a decent chance you live in a coastal city with very restrictive construction policies and you are seeing a real increase in demand for existing homes. That’s different than a general increase in price level.
“Unexpected Returns dominate the Expected Returns” - Ken French
DB2
Posts: 928
Joined: Thu Jan 17, 2019 10:07 pm

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

Post by DB2 »

I would suspect technology, regulations, in addition to manufacturing union expenses (pensions, health care) have been the main reason for the auto cost increases.
ScubaHogg
Posts: 714
Joined: Sun Nov 06, 2011 3:02 pm

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

Post by ScubaHogg »

Independent George wrote: Fri Jan 17, 2020 11:30 am I've been tracking my expenses in Mint since 2007. There's how my actual spending has changed since then:

Food/Groceries: $254/month in 2007. $305/month in 2019 (1.54% annualized)
Electricity: $58/month in 2007, $67/month in 2019 (1.21%)
Cable/Internet: $62/month in 2007, $83/month (2.46%)

That said, a few expenses have gone way, way up.

Condo assessments: $379 in 2007, $704 in 2019 (7.10%)
Property Taxes (Annual): $2,650 in 2007, $4,100 in 2019 (3.70% annualized - but note that the property in question was worth $260k in 2007, and was appraised for $195k last year. If we go by % of FMV, property taxes effectively increased by 6.7% annually).
Income tax rate: 3% in 2007, 4.95% in 2019.

I switched to a high deductible insurance plan in 2017, so I don't have any direct comparables for healthcare, but the common thread in that the areas where costs have skyrocketed is that they all have to do with government (or government-like in the case of my condo association) spending. I don't own a car, but I understand auto related taxes & fees have likewise had a giant increase in the last few years.
Do you ever comparison shop that cable plan (I’m assuming this includes internet)? I pay less than I did 7 years ago.
“Unexpected Returns dominate the Expected Returns” - Ken French
financeperchance
Posts: 256
Joined: Thu Nov 02, 2017 11:15 am

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

Post by financeperchance »

adamthesmythe wrote: Fri Jan 17, 2020 11:03 am 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.
If you believe CPI is understated and that it's really more like 3%-4% rather than 2%, then it's actionable in that you need to:
1) Allocate more to equities than you otherwise would, since corporate profits should go up over time, unlike bond coupons, which are fixed.
2) Save more during your working years than you otherwise would, with the understanding that the future cost-of-living adjustments in Social Security or pensions are likely not going to be enough for your actual, real-world expenses.
ScubaHogg
Posts: 714
Joined: Sun Nov 06, 2011 3:02 pm

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

Post by ScubaHogg »

financeperchance wrote: Fri Jan 17, 2020 12:39 pm
adamthesmythe wrote: Fri Jan 17, 2020 11:03 am 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.
If you believe CPI is understated and that it's really more like 3%-4% rather than 2%, then it's actionable in that you need to:
1) Allocate more to equities than you otherwise would, since corporate profits should go up over time, unlike bond coupons, which are fixed.
2) Save more during your working years than you otherwise would, with the understanding that the future cost-of-living adjustments in Social Security or pensions are likely not going to be enough for your actual, real-world expenses.
And if it’s going up “5-10%” a year then mortgage your house to the hilt (fixed) and buy equities.
“Unexpected Returns dominate the Expected Returns” - Ken French
illumination
Posts: 860
Joined: Tue Apr 02, 2019 6:13 pm

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

Post by illumination »

I definitely think it's flawed, and I'm also open to it being "a feature, not a bug" to make things look "better" than they really are (the politicians that are in charge are always interested in making their tenure be seen in the best possible light) So things like core CPI doesn't include food and energy prices (things that have seen bigger increases and people need everyday to survive) Same with the changes in how unemployment is calculated.

I don't really have the credentials or background to pick it apart, but my shoot from the hip is things that people don't really need and purchase infrequently have gone down in price (think flat screen tvs that you maybe purchase once every 7 years) but a trip to the grocery store costs way more. So it gets scored as low inflation. I would much rather pay more a new TV than my weekly trip to the grocery store.
User avatar
ray.james
Posts: 1378
Joined: Tue Jul 19, 2011 4:08 am

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

Post by ray.james »

For Californians, here are the inflation rates. We are ahead of the Union by at least 1-2% every year :D

http://www.dof.ca.gov/Forecasting/Econo ... Inflation/

Check : Calendar Year averages: from 1950

You can add further for San Francisco/Los Angeles Metros.
Last edited by ray.james on Fri Jan 17, 2020 12:58 pm, edited 1 time in total.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939
financeperchance
Posts: 256
Joined: Thu Nov 02, 2017 11:15 am

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

Post by financeperchance »

ScubaHogg wrote: Fri Jan 17, 2020 12:42 pm
financeperchance wrote: Fri Jan 17, 2020 12:39 pm
adamthesmythe wrote: Fri Jan 17, 2020 11:03 am 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.
If you believe CPI is understated and that it's really more like 3%-4% rather than 2%, then it's actionable in that you need to:
1) Allocate more to equities than you otherwise would, since corporate profits should go up over time, unlike bond coupons, which are fixed.
2) Save more during your working years than you otherwise would, with the understanding that the future cost-of-living adjustments in Social Security or pensions are likely not going to be enough for your actual, real-world expenses.
And if it’s going up “5-10%” a year then mortgage your house to the hilt (fixed) and buy equities.
Yes, this too, that's a very good point, and it's a biggie. If you have a long-term, fixed mortgage at a low interest rate -- and also that the loan-to-value ratio is at a safe level -- then, if you believe CPI is understated, there's a very strong argument for not paying down the principal any faster than you need to. This is particularly true if your income is rising at a healthy clip over time
User avatar
Oicuryy
Posts: 1498
Joined: Thu Feb 22, 2007 10:29 pm

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

Post by Oicuryy »

On the Origin and Evolution of the Word Inflation
For many years, the word inflation was not a statement about prices but a condition of paper money—a specific description of a monetary policy. Today, inflation is synonymous with a rise in prices, and its connection to money is often overlooked.
Money is fungible | Abbreviations and Acronyms
financeperchance
Posts: 256
Joined: Thu Nov 02, 2017 11:15 am

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

Post by financeperchance »

Raryn wrote: Fri Jan 17, 2020 12:22 pm Because you aren't comparing like cars.

A low-tier sedan in 1996 would be substantially less safe and have substantially fewer features than a 2020 model. If you compare a car in 1996 with equivalent features to a low-tier car today, prices have actually gone *down* for the equivalent car. Even something like a Camry costs about the same today as it did 20 years ago - despite todays Camry being substantially better. The CPI takes this into account as part of the "hedonic quality adjustment".

Those less safe, less reliable, worse gas mileage cars that you might have bought for $10k simply don't exist any longer due to federal (& state) regulations.

(If you dig down into the graph of vehicle inflation over time, prices for equivalent cars actually dropped considerably between the late 1990s and c. 2008 and have creeped back up to the mid 1990s levels today)
You definitely make some good points here, and it's too bad the BLS doesn't open source its calculations. The fact is that what Americans actually pay for their new cars on average has doubled from 1997 to today. I understand that today's cars are better, but are they twice as good? I know an auto mechanic who would beg to differ.
Independent George
Posts: 890
Joined: Wed Feb 17, 2016 12:13 pm
Location: Chicago, IL, USA

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

Post by Independent George »

ScubaHogg wrote: Fri Jan 17, 2020 12:31 pm Do you ever comparison shop that cable plan (I’m assuming this includes internet)? I pay less than I did 7 years ago.
I live in a high rise, so I have always used the discounted bulk rate we get with our preferred provider. Interestingly, even with the price increase, the change in my cable/phone/internet package is rather emblematic of how CPI typically overstates inflation by ignoring the quality of goods. The cable plan upgraded to HD programming in 2008, and my cheapest-tier internet service went from (I think) 5 mbps in 2007 to 50 mbps in 2019. The phone portion of the package has always included free long-distance calls - something that would have been ridiculously expensive in the 1990s, before VOIP became a thing. In short, my cable bill has increased at a rate comparable to CPI, but I'm actually getting more for my money over the exact same time period. I also paid almost $1,800 for that early-gen HDTV in 2008; I could buy an even better television today for half the price.

I'd also add that $19 of my $82 cable bill (23%) are taxes. I don't have any old bills, so I can't actually tell you if that's a larger or smaller portion from 12 years ago.
financeperchance
Posts: 256
Joined: Thu Nov 02, 2017 11:15 am

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

Post by financeperchance »

illumination wrote: Fri Jan 17, 2020 12:43 pm I don't really have the credentials or background to pick it apart, but my shoot from the hip is things that people don't really need and purchase infrequently have gone down in price (think flat screen tvs that you maybe purchase once every 7 years) but a trip to the grocery store costs way more. So it gets scored as low inflation. I would much rather pay more a new TV than my weekly trip to the grocery store.
Yes, this is key, and we need to understand this in our retirement planning imo. The other thing too, a very big expense for senior citizens that they must spend, is out-of-pocket expenses for prescription medicine. Nine out of 10 people 65 and older have to take at least one prescription medicine. Source: https://www.kff.org/health-reform/issue ... er-adults/

In a world of hedonic adjustments, the BLS can say that some pill didn't exist 20 years ago, so you can't really count it that much, but the reality is that it's very much a real expense. And the Part D amounts paid out of pocket are going up year after year. You can see the data here: https://www.kff.org/medicare/issue-brie ... proposals/
junior
Posts: 1058
Joined: Wed Sep 10, 2008 6:14 pm
Contact:

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

Post by junior »

My rental housing costs went from 1420 in 2011 to 1585 in 2020. Per an online calculator this increase is less than inflation over this time period.
bhsince87
Posts: 2680
Joined: Thu Oct 03, 2013 1:08 pm

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

Post by bhsince87 »

financeperchance wrote: Fri Jan 17, 2020 12:27 pm
AlohaJoe wrote: Fri Jan 17, 2020 8:22 am
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?
1) The average new car is now $34,000, higher than it's ever been: https://www.motor1.com/news/380009/aver ... ice-34000/ Average cost of a car in 1997 was $16,900 http://www.thepeoplehistory.com/1997.html
2) Auto loans up 76% just in the past decade: https://wolfstreet.com/2019/08/13/auto- ... ince-2010/
Image

Yet somehow new car prices have not been growing since 1997, according to the official statistics. I understand that cars today are safer, and have more safety features, but I have no idea how this this doesn't seem a bit out of whack.
The article you linked in number 1 actually does a good job explaining what is going on.

It explains that a large part of the increase is because many more people are buying trucks and SUVs instead of cars. And they estimate that adds about $10,000 to the cost. So you are comparing apples to oranges.

If I input $16,900 in 1997 into the US CPI calculator, I get $26,900 in 2019. Which is actually less than the $24,000 implied by the article.

https://www.usinflationcalculator.com/

And it also provides another valuable data point. The October 2019 number of $34,217 is less than 1% higher than the December 2018 of $33,924.
"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace." Samuel Adams
financeperchance
Posts: 256
Joined: Thu Nov 02, 2017 11:15 am

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

Post by financeperchance »

bhsince87 wrote: Fri Jan 17, 2020 1:19 pm
financeperchance wrote: Fri Jan 17, 2020 12:27 pm
AlohaJoe wrote: Fri Jan 17, 2020 8:22 am
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?
1) The average new car is now $34,000, higher than it's ever been: https://www.motor1.com/news/380009/aver ... ice-34000/ Average cost of a car in 1997 was $16,900 http://www.thepeoplehistory.com/1997.html
2) Auto loans up 76% just in the past decade: https://wolfstreet.com/2019/08/13/auto- ... ince-2010/
Image

Yet somehow new car prices have not been growing since 1997, according to the official statistics. I understand that cars today are safer, and have more safety features, but I have no idea how this this doesn't seem a bit out of whack.
The article you linked in number 1 actually does a good job explaining what is going on.

It explains that a large part of the increase is because many more people are buying trucks and SUVs instead of cars. And they estimate that adds about $10,000 to the cost. So you are comparing apples to oranges.

If I input $16,900 in 1997 into the US CPI calculator, I get $26,900 in 2019. Which is actually less than the $24,000 implied by the article.

https://www.usinflationcalculator.com/

And it also provides another valuable data point. The October 2019 number of $34,217 is less than 1% higher than the December 2018 of $33,924.
Yes, exactly, but the CPI-U has the new car component of the index rising at 0% a year since 1997. If it were 1% a year instead, then that would be a lot more accurate.
lee1026
Posts: 395
Joined: Sat Jun 21, 2014 7:47 pm

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

Post by lee1026 »

I graphed the CPI for the San Francisco Area against the national graph. Spoilers: it is a lot higher in the Bay Area! If you live in the Bay Area, you just face a lot more inflation than the typical person.

https://fred.stlouisfed.org/graph/?g=pWRA
Independent George
Posts: 890
Joined: Wed Feb 17, 2016 12:13 pm
Location: Chicago, IL, USA

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

Post by Independent George »

illumination wrote: Fri Jan 17, 2020 12:43 pmI don't really have the credentials or background to pick it apart, but my shoot from the hip is things that people don't really need and purchase infrequently have gone down in price (think flat screen tvs that you maybe purchase once every 7 years) but a trip to the grocery store costs way more. So it gets scored as low inflation. I would much rather pay more a new TV than my weekly trip to the grocery store.
That's not been my experience (as per my post above). I'm only one data point, but from what I can tell, prices of groceries/produce have not gone up significantly, while the cost of prepared foods (such as frozen meals) have. Since fewer people cook these days, it's possible that food costs might have gone up significantly even if the price of a basket of individual items (used in calculating CPI) has remained pretty flat.
adam1712
Posts: 503
Joined: Fri Jun 01, 2007 5:21 pm

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

Post by adam1712 »

ray.james wrote: Fri Jan 17, 2020 12:49 pm For Californians, here are the inflation rates. We are ahead of the Union by at least 1-2% every year :D

http://www.dof.ca.gov/Forecasting/Econo ... Inflation/

Check : Calendar Year averages: from 1950

You can add further for San Francisco/Los Angeles Metros.
Small correction, that's the change in consumer prices in California. There's only one inflation rate. Unless you are willing to start trading me $19.50 of your dollars for every $20 of mine.
Independent George
Posts: 890
Joined: Wed Feb 17, 2016 12:13 pm
Location: Chicago, IL, USA

Re: Inflation is much > 2%

Post by Independent George »

Ed_Sandwich wrote: Fri Jan 17, 2020 12:27 pm
ChrisBenn wrote: Fri Jan 17, 2020 6:23 am
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)
My school is now 220% more expensive than it was 15 years ago. It has gone up 15% per year, since my time there.

EDIT: It is a large state school.
The hard part of tabulating college costs is that financial aid is typically need-based, and the entire business model is based on price discrimination. I graduated in 2000; at the time, my out-of-pocket expense was $12k, while my roommate paid the full sticker price of $35k. I have absolutely no idea what someone with an equivalent family income (my Mom was a nurse) would pay today, and colleges go out of their way to make it impossible to find out.
User avatar
nisiprius
Advisory Board
Posts: 41964
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

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

Post by nisiprius »

Oicuryy wrote: Fri Jan 17, 2020 12:55 pm On the Origin and Evolution of the Word Inflation
For many years, the word inflation was not a statement about prices but a condition of paper money—a specific description of a monetary policy. Today, inflation is synonymous with a rise in prices, and its connection to money is often overlooked.
If you choose to define "inflation" as "the number of dollars that are backed by an ounce of gold," then we have $1.5 trillion in US physical currency in circulation, that is backed by 0.000000 Troy zeptoounces of gold... and "inflation" has thus been infinite since 1971. The problem with such a definition, however historically well founded it may be, is that it is useless for any practical purpose I can think of.

When I was a kid, there were still silver certificates--in fact the $5 bill came in three varieties: green for Federal Reserve nots, red for United States notes, and blue for silver certificates. I remember how disappointed I was when I learned that it didn't mean I could actually turn in my money and get a shiny miniature silver bar, but just that the bank would give me four quarters [per dollar] for it--the same as they would do for a Federal Reserve note.
Last edited by nisiprius on Fri Jan 17, 2020 2:09 pm, edited 2 times in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
User avatar
simplesimon
Posts: 3926
Joined: Mon Feb 25, 2008 8:53 pm

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

Post by simplesimon »

nisiprius wrote: Fri Jan 17, 2020 2:03 pm
Oicuryy wrote: Fri Jan 17, 2020 12:55 pm On the Origin and Evolution of the Word Inflation
For many years, the word inflation was not a statement about prices but a condition of paper money—a specific description of a monetary policy. Today, inflation is synonymous with a rise in prices, and its connection to money is often overlooked.
If you choose to define "inflation" as "the number of dollars that are backed by an ounce of gold," then we have $1.5 trillion in US physical currency in circulation, that is backed by 0.000000 zeptograms of gold... and "inflation" has thus been infinite since 1971. The problem with such a definition, however historically well founded it may be, is that it is useless for any practical purpose I can think of.

When I was a kid, there were still silver certificates--in fact the $5 bill came in three varieties: green for Federal Reserve nots, red for United States notes, and blue for silver certificates. I remember how disappointed I was when I learned that it didn't mean I could actually turn in my money and get a shiny miniature silver bar, but just that the bank would give me four quarters for it--just as they would for a Federal Reserve note.
Four quarters for a $5 bill? That's hyper-inflation.
sport
Posts: 9528
Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

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

Post by sport »

nisiprius wrote: Fri Jan 17, 2020 2:03 pm
Oicuryy wrote: Fri Jan 17, 2020 12:55 pm On the Origin and Evolution of the Word Inflation
For many years, the word inflation was not a statement about prices but a condition of paper money—a specific description of a monetary policy. Today, inflation is synonymous with a rise in prices, and its connection to money is often overlooked.
If you choose to define "inflation" as "the number of dollars that are backed by an ounce of gold," then we have $1.5 trillion in US physical currency in circulation, that is backed by 0.000000 Troy zeptoounces of gold... and "inflation" has thus been infinite since 1971. The problem with such a definition, however historically well founded it may be, is that it is useless for any practical purpose I can think of.

When I was a kid, there were still silver certificates--in fact the $5 bill came in three varieties: green for Federal Reserve nots, red for United States notes, and blue for silver certificates. I remember how disappointed I was when I learned that it didn't mean I could actually turn in my money and get a shiny miniature silver bar, but just that the bank would give me four quarters [per dollar] for it--the same as they would do for a Federal Reserve note.
When the silver backing for the silver certificates was ended, there was a short time when the treasury would pay the silver value of a one dollar silver coin if you redeemed the paper certificates. IIRC, it was in the 1960's. I recall saving a small quantity of the silver certificates which I sold to a dealer at a coin show for more than face value. It was something like $1.40 per dollar.
psteinx
Posts: 3570
Joined: Tue Mar 13, 2007 2:24 pm

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

Post by psteinx »

adam1712 wrote: Fri Jan 17, 2020 1:48 pmSmall correction, that's the change in consumer prices in California. There's only one inflation rate. Unless you are willing to start trading me $19.50 of your dollars for every $20 of mine.
**I** am willing to trade you $19.50 of my dollars for $20 of yours. PM me for details.

:)
North Texas Cajun
Posts: 228
Joined: Sun Jul 02, 2017 8:56 am

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

Post by North Texas Cajun »

financeperchance wrote: Fri Jan 17, 2020 1:33 pm
bhsince87 wrote: Fri Jan 17, 2020 1:19 pm
financeperchance wrote: Fri Jan 17, 2020 12:27 pm
AlohaJoe wrote: Fri Jan 17, 2020 8:22 am
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?
1) The average new car is now $34,000, higher than it's ever been: https://www.motor1.com/news/380009/aver ... ice-34000/ Average cost of a car in 1997 was $16,900 http://www.thepeoplehistory.com/1997.html
2) Auto loans up 76% just in the past decade: https://wolfstreet.com/2019/08/13/auto- ... ince-2010/
Image

Yet somehow new car prices have not been growing since 1997, according to the official statistics. I understand that cars today are safer, and have more safety features, but I have no idea how this this doesn't seem a bit out of whack.
The article you linked in number 1 actually does a good job explaining what is going on.

It explains that a large part of the increase is because many more people are buying trucks and SUVs instead of cars. And they estimate that adds about $10,000 to the cost. So you are comparing apples to oranges.

If I input $16,900 in 1997 into the US CPI calculator, I get $26,900 in 2019. Which is actually less than the $24,000 implied by the article.

https://www.usinflationcalculator.com/

And it also provides another valuable data point. The October 2019 number of $34,217 is less than 1% higher than the December 2018 of $33,924.
Yes, exactly, but the CPI-U has the new car component of the index rising at 0% a year since 1997. If it were 1% a year instead, then that would be a lot more accurate.
Are you taking into account the significant changes in the quality of automobiles? I don’t think the BLS uses only prices in detrrminibg the inflation rate for autos. They also adjust for

- changes in safety and engineering features, such as braking and steering;
- for changes in convenience features, such as navigation and communication systems;
- for changes affecting auto performance, such as improved headlights or higher quality electrical components.

Here’s a more complete explanation:

https://www.bls.gov/cpi/quality-adjustm ... hicles.pdf
North Texas Cajun
Posts: 228
Joined: Sun Jul 02, 2017 8:56 am

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

Post by North Texas Cajun »

DB2 wrote: Fri Jan 17, 2020 12:29 pm I would suspect technology, regulations, in addition to manufacturing union expenses (pensions, health care) have been the main reason for the auto cost increases.
I think you are correct with technology and regulations being a part of the answer. Not sure the legacy car manufacturers can pass along increased union expenses to the consumer. I think they have to compete with some significant non-union manufacturers.
financeperchance
Posts: 256
Joined: Thu Nov 02, 2017 11:15 am

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

Post by financeperchance »

North Texas Cajun wrote: Fri Jan 17, 2020 2:31 pm I don’t think the BLS uses only prices in detrrminibg the inflation rate for autos.
No, they don't, and that's the key. It's like adjusted EBITDA for corporations, where you count certain expenses only, but you leave out others. In the real world, where most people must own a car, they must pay what it costs to actually buy a car.

To take one example, someone might say, "Ah, but the government requires automatic braking now. So we don't count that as an expense, since cars didn't used to have that. So, adjusted for that, prices haven't gone up, and new car prices are flat." Et cetera.

It's important in one's financial planning to take into account that the expenses you actually have to pay day to day -- particularly when you are elderly -- could go up at a rate that's higher than the official CPI figures, which do the hedonic adjustments. (And by the way, they didn't used to. So, was the CPI inaccurately high before the late 1990s?)
User avatar
JoeRetire
Posts: 5759
Joined: Tue Jan 16, 2018 2:44 pm

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

Post by JoeRetire »

Workable Goblin wrote: Fri Jan 17, 2020 10:35 am
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.
That sounds right.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
User avatar
JoeRetire
Posts: 5759
Joined: Tue Jan 16, 2018 2:44 pm

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

Post by JoeRetire »

CoastalWinds wrote: Fri Jan 17, 2020 10:42 am Yea, because nothing says quality pizza like a Costco pizza. :oops:
Who said anything about quality? All I see is cost.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
North Texas Cajun
Posts: 228
Joined: Sun Jul 02, 2017 8:56 am

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

Post by North Texas Cajun »

financeperchance wrote: Fri Jan 17, 2020 3:08 pm
North Texas Cajun wrote: Fri Jan 17, 2020 2:31 pm I don’t think the BLS uses only prices in detrrminibg the inflation rate for autos.
No, they don't, and that's the key. It's like adjusted EBITDA for corporations, where you count certain expenses only, but you leave out others. In the real world, where most people must own a car, they must pay what it costs to actually buy a car.

To take one example, someone might say, "Ah, but the government requires automatic braking now. So we don't count that as an expense, since cars didn't used to have that. So, adjusted for that, prices haven't gone up, and new car prices are flat." Et cetera.

It's important in one's financial planning to take into account that the expenses you actually have to pay day to day -- particularly when you are elderly -- could go up at a rate that's higher than the official CPI figures, which do the hedonic adjustments. (And by the way, they didn't used to. So, was the CPI inaccurately high before the late 1990s?)
The hedonic and other price adjustments have been controversial. That I will concede.

How would you adjust inflation figures to account for changes in consumer preferences about automobile features? The BLS has to do something. Many of the features in today’s cars were once options. But so many people opted for them that they became standard. U.S. consumers as a whole consciously decided to pay more for cars in order to get those features. The BLS cannot ignore that consumers collectively made those decisions. They cannot compare the price of yesterday’s apples with the price of today’s oranges.

You apparently do not believe the quality of today’s cars - including safety, environmental, convenience, reliability, and more - is substantially better than the quality of cars 20 years ago. Most of us on this thread, including me, likely disagree with you.

In answer to your question: many economists do believe the CPI was inaccurately high before the late 1990s. I agree with them.
MTwallet
Posts: 4
Joined: Wed Aug 07, 2019 12:11 pm

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

Post by MTwallet »

Jags4186 wrote: Fri Jan 17, 2020 9:54 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.
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.
Where?
Starfish
Posts: 1988
Joined: Wed Aug 15, 2018 6:33 pm

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

Post by Starfish »

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.
It's just a chain which happens to have locations in places where people work so you can go for lunch. It's not different in price from any other place you can get lunch from.
I can compare directly with the prices from 10 years ago because I used to go to exactly the same places, including this particular pizza place.
Starfish
Posts: 1988
Joined: Wed Aug 15, 2018 6:33 pm

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

Post by Starfish »

simplesimon wrote: Fri Jan 17, 2020 8:26 am Get a whole Costco pizza for $10 or a big slice for $2.

Yeah... no thanks.
I am comparing the price of lunch in the same places (or type of places) today and 10 years ago. It wasn't complaining about prices per calorie.
Jags4186
Posts: 5120
Joined: Wed Jun 18, 2014 7:12 pm

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

Post by Jags4186 »

MTwallet wrote: Fri Jan 17, 2020 4:16 pm
Jags4186 wrote: Fri Jan 17, 2020 9:54 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.
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.
Where?
https://www.bestproducts.com/eats/food/ ... za-in-nyc/

2 brother's pizza is right outside of Port Authority.
User avatar
mhadden1
Posts: 729
Joined: Tue Mar 25, 2014 8:14 pm
Location: North Alabama

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

Post by mhadden1 »

The BLS numbers seem to track pretty closely with, say, the numbers from Billion Prices Project.
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.
User avatar
nisiprius
Advisory Board
Posts: 41964
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

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

Post by nisiprius »

With regard to cars, the quality improvements are more than just "hedonic." The first thing that popped up in a Google search for me was this:

Average age of vehicles by household
Image

That's not enough in itself to justify a doubling in price from 1999 to 2019, but it does mean that comparing raw price alone is not appropriate.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Post Reply