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ajh

Cpi Calculations

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From time to time the government VI's argue that food and fuel etc. are left out of the CPI basket because the prices fluctuate, and to include them would give an unstable calculation.

THAT'S RUBBISH

I work in IT, and the very first (mainframe COBOL) system I worked on was a supply system. I remember personally writing some of the code which predicted demand going forward, and from the predictions generated purchase/resupply recommendations. This was 25 years ago.

There were and are fairly simple algorithms based on past statistics, which are specifically designed to smooth out spiky values, and at the same time recognise genuine trends. It would not be hard to add suitably smoothed food/fuel numbers to the CPI.

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From time to time the government VI's argue that food and fuel etc. are left out of the CPI basket because the prices fluctuate, and to include them would give an unstable calculation.

...

If you know so much about CPI and statistics, then how come you are ignorant of what's in and what is not in the CPI? Food and fuel are definitely in there. Try http://www.statistics.gov.uk.

T&T

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If you know so much about CPI and statistics, then how come you are ignorant of what's in and what is not in the CPI? Food and fuel are definitely in there. Try http://www.statistics.gov.uk.

T&T

Regardless, everyone knows that the real rate of inflation is 6-8% as experienced by your average man on the street.

The basket of goods is lacking in a few fundamental items and the statistics are fiddled by 'Crash' Gordon Brown.

CPI is not 2% by a long stretch - Liars

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If you know so much about CPI and statistics, then how come you are ignorant of what's in and what is not in the CPI? Food and fuel are definitely in there. Try http://www.statistics.gov.uk.

T&T

Oops, I should have been clearer. I was thinking about the pronouncements (which may be more prevalent here in Australia and in the US than in the UK) that the core rate excluding food & fuel is more accurate than the headline CPI when I ranted.

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But many argue they should be left out, focussing on 'core' items.

AJH - I'd be very interested to know what your algorithms are.

Well, the easiest one is to sum 'n' (let's assume 12) monthly prices and divide the total by 12. A single monthly spike upwards or downwards will only change the smoothed value by *size of spike*/12, but if prices spike up and stay up then the smoothed value will keep rising until 12 months later it will match the actual price. Notice however, that this calculation involves a lag where there is a change to a new level.

That's equal weight smoothing. You can also have variable weight smoothing, which usually gives greater weight to more recent data. This will pick up trends somewhat faster. For example, you could multiply this month's price by 12, last month's by 11 and so on down. Add the lot together and divide by 78 (= (12*13)/2 = (1+2+3+...+12)).

You can also weight by sales volume rather than time of sale. This is where the stock market abbreviation VWAP (Volume Weighted Average Price) comes from. VWAP over a specified period is often used to give a 'fair' (and largely non-gameable) average price for things like buyback offers.

We used much more sophisticated algorithms (there's reams of stuff in the mathematical literature on smoothing algorithms), and in fact the reason I had to work on our system's code was that I had found an error where someone had incorrectly joined 2 formulae together. It's one of only 3 times in 25 years that I have directly made use of my Pure Maths knowledge at work :) .

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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