PeakTrader.com

administrator · Site Admin Joined: 28 Dec 2005 Posts: 12651

VangelV said...

The problem is that the reported inflation rate is much lower than the true inflation rate. If we used the same methods that we have today for the data in the 1970s there would have been very little reported inflation and the 1970s would have been seen as a period of high growth rather than stagnation.

---------

PeakTrader said...

VangelV says: "The reported inflation rate is much lower than the true inflation rate."

No one has proved any bias in the inflation rate.

Yet, some continue to assume inflation is understated.

It's more likely inflation is overstated, since the adjustments, in the dynamic economy, have been too conservative.

-------

VangelV said...

The methodology calculated inflation was changed but was not applied to the historical data. As I said, if we use the same methods to look at the 1970s data there would have been no reported inflation problem.

http://www.shadowstats.com/alternate_data/inflation-charts

--------

morganovich said...

peak-

"It's more likely inflation is overstated, since the adjustments, in the dynamic economy, have been too conservative."

and you have some evidence for this?

rents are up nearly 7% from a year ago. food is up. healthcare is up. energy is up.

what % of the consumption basket is that, 70%?

i'll ask you the same question that benji always ducks:

do you believe that there was high inflation in the 70's?

if yes, then you must believe in it today. if we use the same CPI calculation, inflation is running over 8%.

alternately, if you believe that today's 3.6% is overstated, then you must believe that 1976 had only 2% inflation.

so which is it?

there is no consistent way to believe that inflation was high then and is low now.

underlying prices are currently moving upward at a higher rate than all but 3 years in the 70's.

so what's your view? was 1976 a year of low inflation?

---------

PeakTrader said...

VangelV, why would you measure inflation the same way in two different economies, e.g. between the 1970s and the 2000s?

---------

juandos said...

"It's more likely inflation is overstated, since the adjustments, in the dynamic economy, have been too conservative"...

No PT real world inflation has been in my opinion vastly understated...

The cost of food, fuel, and increases in taxes are what is happening in the real world...

The fluctuating price of cotton for instance has driven up the cost of clothes...

---------

VangelV said...

"VangelV, why would you measure inflation the same way in two different economies, e.g. between the 1970s and the 2000s?"

For the same reason we measure weight the same way today as we did in the 1970s. Do you really want to change the meaning of a pound or kilogram just because times are different?

----------

PeakTrader said...

VangelV, if the U.S. produced the same output in the 2000s compared to the 1970s, then you can measure inflation the same way.

--------

PeakTrader said...

Juandos, I stated before:

The only price rise I've seen over the past year is gasoline. My income has also gone up.

Housing, auto payments, food, insurance, health care co-payments, clothing, etc. have been unchanged or generally flat.

Prices rise and fall, not just rise.

Also, I may add, many refinanced their mortgages at lower rates, saving hundreds of dollars each month.

---------

VangelV said...

"VangelV, if the U.S. produced the same output in the 2000s compared to the 1970s, then you can measure inflation the same way."

As the man says, what we have is nonsense on stilts. We do not have to produce the same items. All we have to do is to look at the change in prices for a basket of goods that we select and report those changes honestly. People still send their kids to school, pay their taxes, eat food, drive cars, rent or own homes, consume health care. Just measure what happens to those goods and report it.

-------

PeakTrader said...

We also need to note American tastes and preferences change over time.

Americans are more likely to spend more time at home, live in a much bigger and better house, watch nature shows on their big screen TVs than go on a safari, drive an SUV, light truck, or minivan to restaurants, take vacations closer to home, etc.

--------

Benjamin said...

Peak Trader-

If you want to learn something, look at the CPI for July of 2008 and June of 2011. In three years, the CPI is up 2.6 percent--and that may overstate inflation, as real economists note.

Yet we have Chicken Inflation Littles and gold fetishists carnival-barking about inflation, and a cowed Ben Bernanke-san afraid to help his fellow Americans.

---------

juandos said...

PT says: "Housing, auto payments, food, insurance, health care co-payments, clothing, etc. have been unchanged or generally flat"...

Where are you living (something you failed to answer when I asked this question before over this very subject) where those other items you alledged have not gone up or remained flat?

Its NOT happening in Missouri or Illinois...

Its not happening in south Texas...

I just came back from Colorado and prices there compared to year ago have gone up sharply...

"Also, I may add, many refinanced their mortgages at lower rates, saving hundreds of dollars each month"...

I don't know of anyone who's actually refinanced their own mortgages though there's plenty of adverstising on local media to do so...

I'm sure people are though but those that I know and work with claim it isn't worth losing the difference in write offs...

--------

PeakTrader said...

Juandos, over the past four years, I've been living in a medium-size town in Northern California, near San Francisco.

I've seen little price inflation, although prices are high to begin with.

What I've seen are state and local governments squeezing as much money as they can out of California residents.

--------

morganovich said...

trade goods prices for july out today.

imports, up 14% from a year ago.

exports, up 9.8%.

amazing how much inflation you see when you don't cook the numbers.

--------

VangelV said...

"amazing how much inflation you see when you don't cook the numbers."

You forgot to adjust for quality. The packaging is made from recyclable material. That must be worth a 15% improvement.

--------

morganovich said...

vangel-

it would be interesting to adjust oil for quality.

if we refine more heavy, sour oil and that costs more, shouldn't we apply a negative quality adjustment?

---------

PeakTrader said...

Exports and imports don't accurately represent the CPI:

The top ten categories of exports from USA to other countries in dollar value were:

1. Civilian aircraft … $74 billion, up 1.3% from 2007 (5.7% of total US exports)

2. Semiconductors … $50.6 billion, up 0.3% (3.9%)

3. Passenger cars … $49.6 billion, up 13.3% (3.9%)

4. Medicinal, dental and pharmaceutical preparations … $40.4 billion, up 15% (3.1%)

5. Other vehicle parts and accessories … $39.9 billion, down 10.1% (3.1%)

6. Other industrial machinery … $38.1 billion, down 0.6% (3%)

7. Fuel oil … $34.9 billion, up 124.1% (2.7%)

8. Organic chemicals … $33.4 billion, up 5.5% (2.6%)

9. Telecommunications equipment … $32.9 billion, up 4.6% (2.6%)

10. Plastic materials … $31.6 billion, up 8.7% (2.5%).

The fastest growing exports from USA in 2008 by sector were:

1. Fuel oil … $34.9 billion, up 124.1% from 2007

2. Metallurgical grade coal … $5.8 billion, up 97.8%

3. Chemical fertilizers … $10.8 billion, up 71%

4. Other coal and fuels … $2.8 billion, up 66.6%

5. Non-farm tractors and parts … $3.4 billion, up 62.2%

6. Rice … $2.3 billion, up 57.1%

7. Oilseeds and food oils … $3.2 billion, up 56.8%

8. Natural gas liquids … $3.3 billion, up 54.7%

9. Natural gas … $4.9 billion, up 54.6%

10. Unmanufactured goods from agricultural industry … $3.3 billion, up 53.8%.

The top ten categories of imports to USA in 2008 from other countries are:

1. Crude oil … $341.9 billion, up 44.1% from 2007 (16.3% of total US imports)

2. Passenger cars … $125.6 billion, down 6.2% (6%)

3. Medicinal, dental and pharmaceutical preparations … $78.9 billion, up 10% (3.8%)

4. Other vehicle parts and accessories … $64.9 billion, down 11.5% (3.1%)

5. Other household goods … $61.6 billion, up 9.9% (2.9%)

6. Computer accessories … $60.2 billion, down 4.5% (2.9%)

7. Other petroleum products … $52.3 billion, up 8.2% (2.5%)

8. Cotton apparel and household goods … $49.5 billion, down 2.7% (2.4%)

9. Telecommunications equipment … $44.8 billion, up 1.1% (2.1%)

10. Video equipment (television receivers, VCRs, DVD players) … $41 billion, up 3% (1.9%).

The fastest growing imports to USA in 2008 by sector are:

1. Numismatic collectible coins … $1.3 billion, up 268.6%

2. Sulfur and non-metallic minerals … $1.8 billion, up 105.9%

3. Other coal and related fuels… $4.7 billion, up 86.7%

4. Fertilizers and pesticides … $15.1 billion, up 58.5%

5. Food oils and oilseeds … $5.3 billion, up 58%

6. Oilfield and drilling equipment … $12.5 billion, up 57%

7. Feedstuff and food grains … $4.5 billion, up 54.4%

8. Other non-agricultural foods and additives … $709.4 million, up 53.6%

9. Unmanufactured steelmaking materials … $10.8 billion, up 48%

10. Crude oil … $341.9 billion, up 44.1%.

--------

PeakTrader said...

Your inflation rate is low, unless you buy a lot of aircraft, semiconductors, industrial machinery, organic chemicals, metallurgical grade coal, oilseeds and food oils, sulfur and non-metallic minerals, fertilizers and pesticides, unmanufactured steelmaking materials, etc.

-------

PeakTrader said...

And in the production function Y = t(L, K, R, E ... x).

Output (or inflation) is a function of technology (or productivity) on labor, capital, raw materials, energy, land, etc.

Labor and capital are roughly 70% of input costs.

----------

Ron H. said...

Peak

"VangelV, why would you measure inflation the same way in two different economies, e.g. between the 1970s and the 2000s?"

Even if that were a valid question, and I don't believe it is, why would anyone believe the economy suddenly changed drastically in 1992 and has remained in a state that allows accurate measurement with the new CPI calculations ever since?

--------

Ron H. said...

"Your inflation rate is low, unless you buy a lot of aircraft, semiconductors, industrial machinery, organic chemicals, metallurgical grade coal, oilseeds and food oils, sulfur and non-metallic minerals, fertilizers and pesticides, unmanufactured steelmaking materials, etc."

While you are correct that those items don't accurately represent the CPI, I think that is exactly the point morganovich was making. The fact that the prices of those items are higher means that the inputs required to make them are higher, which means that goods consumed in the US must also be higher.

The fact that export volume as well as $ value has increased at the same time import prices have risen means the USD has taken a nosedive, which means pretty much everything we buy costs more. Many of these higher prices are easy to see.

Your personal experience notwithstanding, most people are spending more for many things.

A look at the increased money supply in recent times should tell you that you should expect massive inflation in the near future, unless you believe The Beard can suck it all back out with a snap of his fingers, as he claims.

--------

morganovich said...

also note:

look at the drop off after 1992.

that was a methodology change.

you cannot compare pre 1992 data to post.

the "core" number would read more like 5-6% if the data were normalized.

-------

PeakTrader said...

Inflation slowed in the '90s mostly from:

1. Falling oil and commodity prices.

2. Faster productivity growth.

3. Increasingly larger trade deficits (or more goods).

--------

http://www.blogger.com/comment.g?blogID=28997633&postID=5677528605412692950

http://www.blogger.com/comment.g?blogID=28997633&postID=9004255994445034746

--------

PeakTrader:

Inflation reflects exponential growth (a 3% rise in inflation is a rise from the prior year). So, the arithmetic mean would overstate inflation. You can see this using a compound annual growth rate calculator. Type 140 for ending value, 100 for beginning value, and 4 for number of periods. The answer is 8.78% (not 10%). The more periods, the lower the rate, e.g. 180, 100, and 8 is 7.62% (not 10%).