How do YOU measure true inflation in the USA?

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69GTX: Awesome Posts!

Buscuit: My definition of "true inflation" is what the average individual has seen as price increases for everything they typically buy.

The prices of food are what i think are the best metric for inflation. Everyone eats. Some people eat at restaurants, some people cook food from the grocery store. All areas of the food economy have really skyrocketed IMO. I remember about 8 years ago I could get a Big Carl burger for $1.99 at the carls junior. Today it sells for about $4.49. You have many sectors of the economy going into a Big Carl: Bakery, Fresh Produce, Dairy, Beef, Transportation, Marketing, Electricity, Labor, Real Estate, Franchise Fees, insurance.

The declining TV prices is just another indicator of overseas industry's lack of regulation and small wages. Who makes a TV in America? If they did, they wouldn't be getting cheaper.

Another area of inflation is in the price of new vehicles. In 1995 you could buy a new base pickup for 10k. No you spend 20k for a basic truck on up to about 80k for a one ton diesel with everything. Wasn't a base suburban in the high 30s 10 years ago? Now you have to pay over 50k.

I posted this because i had a spirited debate with a friend, who is a republican yet also a strong supporter of our current president. He thinks Obama has caused very little inflation or smaller inflation than previous presidents. I told him that all the financial stimulus has or will result in significant inflation. I wanted to see the BITOG consensus since you are all smart people.

I try to hedge against inflation whenever possible. I investment in basic 2 bedroom rentals, I stockpile stuff i find on sale that i will need in the future. It seems like every time i go buy something i run out of it costs more than last time.
 
Originally Posted By: Kestas
Some people may not remember, over 35 years ago, the price of houses were rising at an incredible rate. It was then, that the government decided to dismiss the price of housing when calculating inflation. Instead, they substituted the cost of renting, which gave better numbers.

I agree with not believing the government's calculations. They have too much reason to skew results.


If so, the inflation rate would be skewed to the upside, as rents are up.
 
Originally Posted By: Mr Nice
Job market is not as rosy as some people say it is.

Caterpillar announced 10,000 layoffs this week.

www.DailyJobCuts.com



Well, BLS has the employment to population ratio about 9 million below peak values in 2007, and up about 3.5 million from recession lows. Basically, about 4 million workers evaporated into early retirement or the hard-core unemployed. Looks pretty plausible to me. http://data.bls.gov/timeseries/LNS12300000


The labor participation rate for prime age workers, 25-54 is down about 2% from 2007. I don't know how many millions that is, but it bespeaks considerable slack still in the prime of the labor market. Here is the chart from the fed "FRED" http://3.bp.blogspot.com/-VcZwgw9q64Y/U2...990-present.png
 
Salaries for those employed full time have been relatively stagnant for a decade. Many who lost jobs in the "great recession" got new jobs paying less, or jobs that require more effort for the same money. This does not describe everyone, I know. If your salary stays stagnant then even a little inflation means something.
 
Its pretty much nothing and has been since I can remember buying stuff.

If anything with the drop in price of fuel, and electronics were in a deflationary period.

http://www.ebay.com/itm/Honda-Accord-4dr...em=291569987906

Here is a perfect example with a commodity car. In 2001 my buddies dad purchased a brand new Honda Accord LX, for the same price. So since the 2015 Accord is a better car, inflation has been about zero but utility for the money spent has increased significantly.

When I started working in 2002 my first job was at a deli, lunch meat and cheese are still about the same price today. I think Boars head turkey depending on where you shop is up $.50 cents a pound since 2002.
 
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Originally Posted By: jimbrewer
Originally Posted By: Kestas
Some people may not remember, over 35 years ago, the price of houses were rising at an incredible rate. It was then, that the government decided to dismiss the price of housing when calculating inflation. Instead, they substituted the cost of renting, which gave better numbers.

I agree with not believing the government's calculations. They have too much reason to skew results.


If so, the inflation rate would be skewed to the upside, as rents are up.


Not necessarily. The BLS calculates an average "imputed" rent (IR) rather than the actual current value if you were a fresh face looking for an immediate rental. Averaging things softens the blow of new changes, making IR a lagging input to CPI. For renters who are locked into deals for years or have "relationships" with their landlords, their rents may not change all that much despite higher prices for new tenants. As a landlord you'd like to lock in those reliable longer term renters and keep them for years. The CPI should really calculate current changes, not dilute things with an average. The goal with the CPI is to keep managed and as low as possible. Average rents help do that. Housing prices have no such "average" value as when they were part of CPI up to 1983, it was the current market price. And that made the CPI move very quickly. Good think housing prices were not part of the CPI from 1996-2007 as we'd have seen CPI go through the roof.
 
The CPI uses geometric means to help smooth spikes in prices. But, our grocery carts and wallets are purely arithmetic machines. We don't get geo weighting at the check out counter. Say, last time you went shopping you bought 3 different goods for $10 each. And next time out, 2 of those goods are still $10 but the third one has doubled to $20. According to your wallet, you just saw a 33% price average price increase on those 3 goods (average price of $13.33). The CPI would geo weight them to an "average" price of $12.60 (26% price increase). Spikes are smoothed out. I'm more concerned in what leaves my "arithmetic" wallet.
 
Imputed rent is a perfectly reasonable approach, as we do not run out and buy houses very often. It would be inaccurate to pretend that we do, and it would be inaccurate to ignore it completely, although housing costs are fixed for many.

I assume (although I do not know) that there is a rent component that is actually rent as we commonly know it. If so, housing costs would be skewed upwards to that extent.
 
Originally Posted By: Mr Nice
We get 4-5% yearly raise. Some employees still complain its not enough.


I would love that. What I get told is that I am "already above 100% of the survey range" and get a token 2.5%, if I'm lucky.
 
Here is the list (partial) of things I pay less for now than a year ago:

Gasoline (Not a large expense for me, anyway)

Here is a list (partial) of things that cost more than a year ago:

Groceries
Tolls (the local toll authority just raised the rates 10%)
Insurance (homeowner's and auto)
Property taxes (the price you pay for escalating home values)
Electricity (not a huge increase)
Natural gas (Atmos raised the "base charge")
Health insurance
Generic maintenance med (almost doubled in price)
Phone and cable (even if the rates don't go up the "miscellaneous fees" do)
Movies (optional, yes, but I have always liked going to the movies)

No need to go on. Inflationary measures can easily be skewed by the choice of goods and services included. I don't think inflation has been huge compared with history, but it's there and significant for some.

Also, have your work hours gone down, or up? Do you work harder now than a year ago? If so, even if you get a decent raise, you may not be getting a great deal. Corporate America thinks it can expect employee productivity levels like it enjoyed in 2009 at the height of the recession. What I see is a lot of burned out people who make tons of mistakes and are generally ambivalent about it.
 
To me, the most reliable measure of inflation is what it costs you each month to live as you always have.
Based upon that, I tend to find the government's CPI figures pretty reliable.
The cost of money also supports the notion that we have a quite low rate of inflation.
Even bonds with long maturities are trading at yields to maturity that indicate that their mainly institutional buyers accept that inflation remains low.
It should also be noted that the USD is appreciating against most other major currencies.
Check the Euro exchange rate, for example.
 
Originally Posted By: Mr Nice
My work hours have gone up, I don't mind the extra $25K in OT.

The way the job market is.... its do more with less staffing.


If you don't mind the extra time away from family and leisure that's cool, except in my case, I am salaried. Being salaried in Texas is very often used as an excuse for abuse. (hey, that rhymes!)

Maybe it's that way in other states as well since corporations rule. Can't stifle the "job creators," can we?

Why should the job market be that way? Corporate profits and cash reserves are at an all time high. The execs' salaries, too. They're just trying to hold onto that as long as they can, which is the way things work in capitalism. Problem is that customer service and quality are suffering. Again, until it hits them in the pocket they care very little.
 
To me, a good way to measure local inflation is the price of a Big Mac meal at McDonald's.

You can learn quite a bit from that actually. A small midwest city compared to Chicago is quite the difference too.
 
The Economist uses the Big Mac index to measure this and the true exchange rate around the world.

It assumes the value of a Big Mac sandwich is the same across time and countries.

Use that for long term inflation.
 
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