Quite a lot of people are starting to say that measuring inflation with a single number is like measuring the temperature of the whole US with a single number - "today the temperature in US is 81 F".
Those people don’t understand how the CPI is calculated. A basket of goods is used to project what an average person would spend on goods and services. Do people in New York spend more on the same basket? Of course! But the percentage change is fairly uniform in a connected economy like the US. The measurement is intended to calculate the macro effect of inflation; not Bob’s impact, who lives in Ohio, owns three cats, and exclusively eats tuna from a can.
An analogy is the BMI. This is intended as a population metric, but is often used by the individual. It’s less useful for the individual, but still actually pretty useful. If your BMI is above 30, you’re probably unhealthy. You might be a pro wrestler with huge muscles, but you probably aren’t.
People live in one place and only care about the weather at that place. Whereas consumers need products from all sectors of the economy, so an aggregate inflation indicator makes sense.
Sure, it's not perfect, since every household spends their money differently, but everyone needs food, housing, energy, etc.
I think it’s an apt metaphor. If you lived in a big city in the 2010s, you’ve probably read years worth of headlines about low inflation, all while experiencing a rapidly inflating cost of living.
CPI is like climate news, not weather news, and should be understood as much.
The point is that GDP is a measure of how much the economy in the US grows or contracts, just as CPI is a measure of how much prices in the US grow or contract. You shouldn't view GDP as a personal indicator of economic growth, just like CPI isn't an analysis of costs on your personal spending. Treating it as such feels like distorting the purpose of the measure to suit a narrative.
It has limitations in its ability to measure that, it can simultaneously be the best measure that we have, in the absence of a better one, doesn't mean its good or a helpful indication, and as we both agree it’s not a good indication of any individual persons experience
> It has limitations in its ability to measure that
Nobody has denies this, so why is it a talking point?
> as we both agree it’s not a good indication of any individual persons experience
Which is why I use it for what it is instead of complaining about it not being something else. Any one individual is influenced by their own bias and experience, which creates an entirely different problem.
> If GDP goes up 5%, but you only get a 3% raise does that make GDP a bad measure of the economy?
let's stick with the basics. this was the whole conversation, a leading question that pretends to be a thought exercise that suggests in some other scenario that GDP is a good measure. no more, no less. I think we've gone over everything now.
I didn't see where you developed the bulletproof case that GDP was a bad measure. If you've proven that at some point, I'm happy to adjust my understanding. In lieu of that, I'll go with the economic experts who regularly study, use, and rely on GDP for real world analysis.
> you're the only one that had to read it twice, we talked about it now, good talk.
The lack of punctuation and choice of verb tense made it difficult to understand, no need for the condescending tone.
I like the analogy. Recent inflation hasn't hit my household as hard while its crippling for others. We work from home and rarely drive far when we do leave the house. We eat frugally and cook almost all our own meals. Finally we own our home and are locked in at our mortgage rate. Inflation has been hammering energy, food and housing costs. We've felt some of the food increases but the rest, not really.
Meanwhile imagine a family that rents their home, commutes long distances to work and has growing kids. They are probably drowning. Comparing these cases feels a lot like averaging together the temperatures of Seattle and Houston.
Which is potentially useful if the aggregate is weighted appropriately and whatever insights respect the implications of using an aggregate. It's even more useful with the additional information that temperatures in the US tend to be highly correlated between areas.
Some useful insights if you have enough data points would be where in the year you are, which season it is, if it might be an El Nino or la Nina year, and over the long term if there are any secular trends like global warming...
I'm wondering if these people are suggesting a completely different approach, or if they are just starting to realize that BLS publishes a huge number of inflation measures [1]:
> Price indexes are available for the U.S., the four Census regions, nine Census divisions, two size of city classes, eight cross-classifications of regions and size-classes, and for 23 local areas. Indexes are available for major groups of consumer expenditures (food and beverages, housing, apparel, transportation, medical care, recreation, education and communications, and other goods and services), for items within each group, and for special categories, such as services.
It’s wrong because there’s a freak snowstorm in Seattle and it’s 39°F there right now and it’s 81°F in Kansas City. So the average temp between those two place is 60°F which tells us nothing useful about either place.
Over longer time the US average temp is useful, it tells us something about the climate, not the weather. Maybe that analogy kinda works for the economy.
Sure, but prices are up everywhere for most goods. Are prices actually down for anything significant right now? So using the weather analogy, it is hot everywhere in the US.
