PeakTrader.com

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PeakTrader said...

Morganovich says "i am wondering to what extent this may be being driven by differentials in inflation."

Even if there were an inflation differential, it wouldn't be much. It's driven by increased economic activity, higher real income, lower interest rates, the payroll tax cut, pent-up demand, etc..

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More imaginary inflation from Jon and Morganovich.

Food and beverage C.P.I. rises 0.1% in February
March 19, 2012

"The Consumer Price Index for food and beverages increased 0.1% in February.

The gain followed increases of 0.2% in both January and December.

The food index was flat in February after rising 0.2% in both January and December.

The only major grocery store food group indexes to rise were cereals and bakery products and other food at home. Other food at home was the big mover, rising 0.4%...while cereals and bakery products advanced 0.2%.

The index for dairy and related products, which rose 0.9% in January, fell 0.5% in February.

Also decreasing during the month was the index for meats, poultry, fish, and eggs, which fell 0.2%.

The index for nonalcoholic beverages, which eased 0.3% in January, was unchanged in February."

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CPI year-over-year - Feb '11 to Feb '12:

All items 2.9%
Food and beverages 3.8%
Food at home 4.5%
Food away from home 3.1%

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Of course, unless core inflation falls, we won't get a QE3:

CPI Feb '11 to Feb '12:

All items less food and energy 2.2%

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Jon and Morganovich, if you want to understand why inflation is not understated, see:

Addressing Misconceptions
About the Consumer Price Index
Monthly Labor Review • August 2008

http://www.bls.gov/opub/mlr/2008/08/art1full.pdf

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Jon Murphy, you presented no proof the CPI is bias, one way or the other (and neither has Morganovich).

The BLS methodology gives the best possible unbiased estimate of inflation, although, it likely overstates inflation, since appropriate adjustments have been cautious.

Yet, you assume it understates inflation.

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Morganovich, there've been many rigorous studies on the CPI besides "the boskin report."

Why believe in weak studies or speculation instead?

The link above in the Monthly Labor Review has real answers.

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Jon Murphy, I doubt there's an easy way to measure changes in the general price level of a most dynamic, large, and diversified economy, particularly in the Information Revolution.

Of course, it's difficult, if not impossible, to quantify quality.

Do you have any proof the ACCRA Cost Of Living Index is more accurate than the CPI?

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Morganovich says "geometric weighting will ALWAYS underreport inflation."

Another false assumption. Not using the geometric average will overreport inflation over time, because inflation increases exponentially.

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%).

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Morganovich says: "the mechanical weightings get further divorced from reality every year. rent is massively understated, as is healthcare."

Everything has to add up to 100%.

Food and beverages 15.2%
Housing 41.0%
Apparel 3.6%
Transportation 16.9%
Medical care 7.1%
Recreation 6.0%
Education and communication 6.8%
Other goods and services 3.4%

Note, this is the aggregate average, and it my not fit your average spending.

http://www.bls.gov/news.release/cpi.t01.htm

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Ron,

1 X 1.05 = 1.05
1.05 X 0.95 = 0.9975

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http://www.blogger.com/comment.g?blogID=28997633&postID=8321192696391278119

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PeakTrader:

If a larger percentage of Americans can afford a 2012 Ford F-150 (or a similar vehicle) today than a new Ford Pinto in 1980, what does that really say about inflation (and interest rates) or real income?

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