Yesterday's WSJ had an interesting piece about inflation on page A2, by Washington reporter David Wessel.
Here's some excerpts:
WHY INFLATION SEEMS TO HAVE SHARPER TEETH THAN THE CPI SUGGESTS
Write about inflation, and readers are quick to complain that the U.S. Government's consumer price index fails to capture the reality of rising prices........
Some economists don't much like the most commonly used version of the CPI, either. They say it OVERSTATES inflation, but that's another story.
Some consumer skepticism is inherent in the way a price index is calculated. It is an average--and no one is average. It measures the change in price in a basket of goods and services that matches no one person's shopping list: Medical care accounts for 4.8% of the CPI. But if you are chronically ill, you will notice rising health-care costs more.
College tuition accounts for 1.1%. But if you have a child in college...........The CPI is a national average: The fine print shows that prices rose 1.7% in the San Fran area, but 4.8% in the Miami area.
Monthly changes in the CPI, the ones that get the most media attention, are adjusted to remove usual seasonal fluctuations. "In many cases, we may talk about a component declining when it actually rose, but less than it historically did in that particular month," says Patrick Jackman, the BLS price maven. "It doesn't make much sense to the man in the street to tell him that gasoline prices declined, when they just rose less than the seasonal pattern expects."
U.S. govt inflation figures also recognize that a $1,500 personal computer today is more powerful than a $1,500 PC purchased three years ago. If it is twice as powerful but carries the same price tag, then the BLS counts that as a price cut, a decline that offsets price increases in other things.
And then there is housing. To the consternation of some economists, the CPI doesn't track the rising price of houses directly, but instead relies on rents, which have been rising more slowly than house prices. Rationale: The CPI tracks the cost of living in a house, not its investment value. "Homeowners are assumed to rent to themselves at the market rent," the BLS explains.......
When consumers get a good deal--a bargain airfare or case of soda on special--they think they are great shoppers. When they see their electric bills go up, they curse rising prices. They don't look at airfare savings as offsetting electric-bill increases. The don't notice what the CPI does: The price of men's pants has fallen more than 5% in the past year.
...Consumers who complain that the govt understates inflation may really be saying that their paychecks don't seem to go as far as they once did. For many Americans, that is true, But it isn't that prices are going up faster than the govt estimates. It is that their wages aren't keeping pace. Blame the boss, not the BLS............. |
