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Ok, Lets Have Another Discussion About How Price Inflation Should Be Measured, And Whether The Cpi Is Rubbish

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We get into this argument every month, but hey, it’s a slow day, not a lot going on in the world….

I think that both the CPI and RPI are imperfect measurements. I also think that the decision not to take mortgage payments into account when setting interest rates was, in retrospect, a mistake, even though there are good technical reasons for doing so.

These are, in my view, all valid, although not necessarily correct, ways to criticise inflation measurement

(these are examples of what you might argue - not necessarily my personal views)

a) I think CPI is irrelevant – RPI should be the inflation rate that people refer to and should be the rate that the BoE is tasked to target

b ) I think that the specific goods in each category used for the CPI are incorrect. They do not represent what people actually buy. This is either the ONS being silly or trying to keep the inflation rate down by picking goods that are deflating. E.g in the “Non durable household goods” category they should be measuring the price of Domestos bleach rather than Andrex toilet roll.

c) I think that the weightings used in the CPI are incorrect. E.g. I believe that the UK population allocates more/less than 6% of their spending to “Clothing and footwear goods”

d) I think that they are simply lying about the prices of goods. E.g They say that Cheese has gone up 15% in the last year, but I think its 50%.

e) I do not think that they should apply hedonic regression. This is the process whereby, especially for technology goods, the price is rebased according to utility provided, measured by capability. E.g the price of a computer is rebased as speeds increase to measure the increase in “price per MHz/GB” rather than “price per mid range computer”

f) This is not MY CPI – I spend my money in a completely different way to the way that the index suggests. E.g. I spend only 3% of my income on Clothing and Footwear rather than 6%.

g) Although correct, the CPI does not help us understand the social impact of what’s happening to prices. If basics like food and electricity are going up in price much more than luxuries like DVDs and Ipods, then the poorer segments of society are suffering much more than is implied by the headlines rate.

These are, in my view, NOT correct ways to criticise inflation measurement

a) The price of goods such as Ipods and DVDs is irrelevant, because they are luxury, or discretionary goods. Inflation should only measure those goods that are necessary, or non-discretionary.

b ) Inflation should ignore technological cost reduction advancement. If a 8GB memory stick costs £50 in one year and then £10 the next year, this should not be recorded as deflation.

Here’s why I think these latter are not valid criticisms.

Firstly, I am assuming that we are trying to maximise utility/pleasure/happiness. Secondly, I am assuming that everything we purchase provides utility. This may be a non-discretionary purchase (i.e. we have to buy something (food, heating) to survive), or a discretionary purchase (something that provides utility/pleasure, but that we don’t need to survive.

Consider a simplified example.

I earn £1000 a year. I buy only two goods, Food and DVDs. Let’s assume that Food is a non-discretionary good. I buy only as much food as I need to survive. Buying more than that doesn’t provide me any additional utility/pleasure. DVDs are a completely discretionary good. I don’t need them to survive, but each DVD provides pleasure if I buy it.

Year 1: Let’s assume that I need 200 units of food per year to survive, and that each unit of food costs £2. Let’s assume that each DVD costs £3 and each DVD provides 1 unit of utility, U.

I buy 200 units of food for £400, and buy 200 DVDs for £600. I have 200 utility units (200U)

Year 2: Let’s assume that food goes up to £4 per unit, and DVDs drop to £1 per unit. Since food is non-discretionary, I purchase 200 units of food for £800 and 200 DVDs for £200. I still have 200 utility units, 200U.

It’s plain wrong to say that the price of non-discretionary goods doesn’t matter.

For the memory stick point, again, consider another example replacing DVDs with memory sticks

Year 1: Let’s assume that I need 200 units of food per year to survive, and that each unit of food costs £2. Let’s assume that each GB of memory on a memory stick costs £2, you get 2GB on a memory stick (which costs £4) and that each GB (n.b NOT memory stick) provides 1 unit of utility, U

I buy 200 units of food for £400 and buy 150 memory sticks for £600, providing 300 GB of memory. I have 300 utility units, 300U.

Year 2. Food remains at £2, but the price of a GB drops to £1, so a 2GB memory stick costs £2. I buy 200 units of food for £400 and buy 300 memory sticks for £600 providing 600 GB of memory. I have 600 utility units, 600U.

Just because something is “inevitable” (i.e technological advancement reduces costs) does not mean that it shouldn’t be measured in price inflation. NB. What I have done is NOT the same as hedonic regression

Edited by auk

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Thank goodness, some sense being talked.

You missed one big, significant flaw with the CPI: it uses a geometric mean, rather than an arithmetic mean. This is nonsensical, because shopping baskets are additive, not multiplicative.

For example, say the basket of goods contains two items with equal weighting: apples and oranges. Over a given year, the price of apples increases by 10%, but the price of oranges doubles. What is the inflation rate?

The obvious and correct answer is that it is ((100+10) + (100+100) / 2) - 100 = 55%. If at the start of the year you spent £100 on apples and £100 on oranges, by the end of the year you would be spending £110 on apples and £200 on oranges for the same quantity of goods: a total of £310, which is £110 more than the £200 you were originally spending - 55% more.

The broken CPI measure does the calculation differently. It says that the rate of inflation is (sqrt( (1.0 + 0.1) * (1.0 + 1.0) ) - 1.0) * 100 = 48%. Which it clearly isn't.

There is no good reason for using this method of calculation. It always underestimates the true rate of inflation. It's just an outright lie.

RPI, incidentally, uses a propert arithmetic mean. This is one of the many reasons it's a better measure.

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Thank goodness, some sense being talked.

In the questions at the end of the webcast about the CPI inflation (see the thread for the link) Mervyn talks about the possibility that RPI could become lower than CPI... Which is *definitely* curious. There's another really good question about the perception that CPI bears no credible relationship to the inflation experienced by domestic residents...

Another thing that I'm finding strange is that RPIX is rapidly increasing and approaching RPI (which is almost static)... This is strange as, in the news, the cost of mortgages is significantly increasing. The only way I can see this making sense is if people are choosing to pay down large mortgages with substantial savings... or something similar... which seems unlikely to me.

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c) I think that the weightings used in the CPI are incorrect. E.g. I believe that the UK population allocates more/less than 6% of their spending to “Clothing and footwear goods”

If we leave aside that the weightings are correct by definition, it is not that individuals buy in different proportions that counts... there's another more important effect.

When the amount spent on an item in total (i.e. by everyone) rises, then its relative weight is increased (or vice-versa.) Say widgets become a significant expense nationally - this has several effects... irrespective of monetary policy, the high price encourages widget production - hence increasing supply, and lowering prices. The widgets-weight, in the inflation metric, however, is set annually - so will respond more slowly to the changing market. Hence, where prices are volatile, any weighted approximation of inflation will under-estimate... assuming a functioning free-market. Where an inflation measure is used to set wages or interest rates, there are other feedbacks which exaggerate this effect.

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If we leave aside that the weightings are correct by definition, it is not that individuals buy in different proportions that counts... there's another more important effect.

When the amount spent on an item in total (i.e. by everyone) rises, then its relative weight is increased (or vice-versa.) Say widgets become a significant expense nationally - this has several effects... irrespective of monetary policy, the high price encourages widget production - hence increasing supply, and lowering prices. The widgets-weight, in the inflation metric, however, is set annually - so will respond more slowly to the changing market. Hence, where prices are volatile, any weighted approximation of inflation will under-estimate... assuming a functioning free-market. Where an inflation measure is used to set wages or interest rates, there are other feedbacks which exaggerate this effect.

If I may paraphrase, you are saying that

At the beginning of year 1, people spend 5% of their income on widgets. Each widget costs £1. The weighting is 5% in the CPI.

During year 1, the price goes up to £2 each. The actual % of people's income that goes on widgets is therefore higher than 5%. Therefore the weighting of that 100% price increase should be more than 5%?

You are correct - although the effect will be mitigated by the substitution effect. Assuming that widgets are discretionary (and virtually every good is, in reality, discretionary), people will substitute away (in quantity) from widgets to other goods. The total amount spent on widgets will, under usual circumstances, go up, but not by 100%.

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Thank goodness, some sense being talked.

You missed one big, significant flaw with the CPI: it uses a geometric mean, rather than an arithmetic mean. This is nonsensical, because shopping baskets are additive, not multiplicative.

For example, say the basket of goods contains two items with equal weighting: apples and oranges. Over a given year, the price of apples increases by 10%, but the price of oranges doubles. What is the inflation rate?

The obvious and correct answer is that it is ((100+10) + (100+100) / 2) - 100 = 55%. If at the start of the year you spent £100 on apples and £100 on oranges, by the end of the year you would be spending £110 on apples and £200 on oranges for the same quantity of goods: a total of £310, which is £110 more than the £200 you were originally spending - 55% more.

The broken CPI measure does the calculation differently. It says that the rate of inflation is (sqrt( (1.0 + 0.1) * (1.0 + 1.0) ) - 1.0) * 100 = 48%. Which it clearly isn't.

There is no good reason for using this method of calculation. It always underestimates the true rate of inflation. It's just an outright lie.

RPI, incidentally, uses a propert arithmetic mean. This is one of the many reasons it's a better measure.

I don't have a strong view on which is the right mean to use, but there is a good reason for using geometric mean, again the substitution effect. If the price of oranges doubles and apples goes up by 10% you would expect people to buy fewer (in quantity) oranges than they did before compared to apples

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b ) Inflation should ignore technological cost reduction advancement. If a 8GB memory stick costs £50 in one year and then £10 the next year, this should not be recorded as deflation.

This, to me, is an exceptionally valid criticism. Here's why...

I get through home PCs at the rate of about one every two years. They're not only work essentials, but also my primary "leisure item". As those of us who follow these things will know, the rate of advance in technology is pretty rapid. I'm currently using a machine that's a couple of years old, and yet I would struggle to find any of the major components on sale today - they just don't make them any more. However, if I was to replace it, as I will this summer, I would have to spend the same or more to get a machine that will do the two or three years work that I require from it.

Whilst I don't have the reciepts, I can safely say that since PCs have become the mass-market home appliance they are today, prices have remained pretty constant. Go back to, say, 2000, and you'd be paying £300-£400 for an entry level machine, about a grand for something reasonable, and anything up to two grand for a total rocket. These prices haven't really changed. Yes, the underlying* capabilities of these machines have gone up in a way that makes CGNOAs rockets look sleepy snails, but when measured by the need to remain current, they are no different from machines bought eight years back. The entry level machine will be "obsolete out of the box", the reasonable one will give you a couple of years of currency, and rocket will give you a couple of years of currency plus another two inches "e-peen" for a few months with those who care about these things.

Now, on the face of it, laptops appear to be a slightly different kettle of fish here. The bottom and middle price ranged items have genuinely dropped in price. However, in my opinion, they should not have been included in any inflation calculation until they had already done so, as they were not even close to a mass-market item. Or, to put it another way, up until a couple of years back, the laptop had more in common with the photocopier than it did with the washing machine.

You could say exactly the same thing about tellies. I don't exactly buy a lot of tellies, but it strikes me that the market is exactly the same as the PC market. You've got cheapie ones, you've got normal tellies, and you've got early-adopter genital padders. The fact that ye normal telly for the lounge is a digital-ready plasma screen instead of an FST the size of Luxembourg is irrelevant - as a purchase, it's still a "normal lounge telly", the price of which hasn't exactly plummetted. Using out current telly as an example, it's a biggish CRT which cost (IIRC) £500 five years ago. To replace it now, with something that does roughly the same job, would cost... oh, £500 - £600 quid.

From both the examples above, I feel it's pretty clear that whilst capabilities have increased, the price of staying put on the obsolence curve is exactly the same, simply because by the time you come to purchase an equivalent replacement product, the original item either no longer exists, or its technical properties are precisely the reason you are upgrading.

* As in, "the numbers on the spec sheet have got bigger". Based on these, computer prices would offer near-infinte deflation since the early 50s.

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If I may paraphrase, you are saying that

Feel free - to paraphrase - that's not a bad illustration.

The timing of weight adjustments is relevant since the metric is calculated monthly, but the weightings are set annually. The flip-side of your argument is that the items most likely to go up in price have small weights. This is especially relevant in the context of CPI - i.e. the one that uses a geometric mean.

I don't share your confidence in substitution. For example, I won't substitute logs for gas when my home has central heating and no open fire place (or vice-versa). Similarly - while I could (in principle) substitute diesel for petrol - the costs incurred in changing my car will likely prevent this in the short term. While I'd quickly adopt brand substitution, product substitution is far harder - since it would demand a (potentially costly) change in my lifestyle. Additionally, I'd argue, if I substitute Tesco-value bread for Waitrose speciality bread, this will be because I can't finance the latter, and would represent a reduced standard of living - and hence, philosophically, shouldn't affect the inflation measure.

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I don't have a strong view on which is the right mean to use, but there is a good reason for using geometric mean, again the substitution effect. If the price of oranges doubles and apples goes up by 10% you would expect people to buy fewer (in quantity) oranges than they did before compared to apples

But inflation should be measured based on what people do buy, not on what you might expect them to buy. If people start buying more apples and fewer oranges, then change the weightings.

Altering the inflation basket based on substitution effects is a shakey idea anyway. If steak becomes more expensive, people might switch to hamburgers - but if you make that substitution in the CPI, then a comparison between the new basket and the old basket is really unfair, because they measure the cost of a different standard of living. (This comes back to hedonistic adjustment in the end, of course.)

The ONS (and the Eurocrats who came up with the CPI formula) do indeed cite substitution effects as an excuse for using the geometric mean. But that's like the police saying "Oh, we know that everyone slows down when they go past a speed camera, so we multiply our radar measurements by the square-root of pi/2". It distorts reality and it doesn't make sense.

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b ) Inflation should ignore technological cost reduction advancement. If a 8GB memory stick costs £50 in one year and then £10 the next year, this should not be recorded as deflation.

This, to me, is an exceptionally valid criticism. Here's why...

I think it would be exceptionally valid if the ONS intended to measure value in that way. I don't have a reference, but I read in some document from the ONS that this isn't what they set out to do. (Though I accept that they are likely fallible on individual instances.) Their illustration talks about PCs doubling in speed/capacity each year... and they say that they find prices for a "typical PC" this month - rather than attempting to match identical specifications month-to-month.

So, as I understand it, if in January memory sticks are sold in 1,2 & 4GB variants (in equal numbers) - then the 2GB would be used for the metric... whereas in August, where sticks are sold in 2,4 and 8GB units - a price for a 4GB one would be the reference... but would still be called "A memory stick".

But inflation should be measured based on what people do buy, not on what you might expect them to buy. If people start buying more apples and fewer oranges, then change the weightings.

With the caveat that accuracy is actually very hard to achieve, this - I understand - is what the ONS sets out to do. The ONS doesn't, on the whole, intend to choose what to include - but rather to try to reflect what is bought in volume. This can, of course, only ever be an approximation.

Edited by A.steve

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This, to me, is an exceptionally valid criticism. Here's why...

I get through home PCs at the rate of about one every two years. They're not only work essentials, but also my primary "leisure item". As those of us who follow these things will know, the rate of advance in technology is pretty rapid. I'm currently using a machine that's a couple of years old, and yet I would struggle to find any of the major components on sale today - they just don't make them any more. However, if I was to replace it, as I will this summer, I would have to spend the same or more to get a machine that will do the two or three years work that I require from it.

Whilst I don't have the reciepts, I can safely say that since PCs have become the mass-market home appliance they are today, prices have remained pretty constant. Go back to, say, 2000, and you'd be paying £300-£400 for an entry level machine, about a grand for something reasonable, and anything up to two grand for a total rocket. These prices haven't really changed. Yes, the underlying* capabilities of these machines have gone up in a way that makes CGNOAs rockets look sleepy snails, but when measured by the need to remain current, they are no different from machines bought eight years back. The entry level machine will be "obsolete out of the box", the reasonable one will give you a couple of years of currency, and rocket will give you a couple of years of currency plus another two inches "e-peen" for a few months with those who care about these things.

Now, on the face of it, laptops appear to be a slightly different kettle of fish here. The bottom and middle price ranged items have genuinely dropped in price. However, in my opinion, they should not have been included in any inflation calculation until they had already done so, as they were not even close to a mass-market item. Or, to put it another way, up until a couple of years back, the laptop had more in common with the photocopier than it did with the washing machine.

You could say exactly the same thing about tellies. I don't exactly buy a lot of tellies, but it strikes me that the market is exactly the same as the PC market. You've got cheapie ones, you've got normal tellies, and you've got early-adopter genital padders. The fact that ye normal telly for the lounge is a digital-ready plasma screen instead of an FST the size of Luxembourg is irrelevant - as a purchase, it's still a "normal lounge telly", the price of which hasn't exactly plummetted. Using out current telly as an example, it's a biggish CRT which cost (IIRC) £500 five years ago. To replace it now, with something that does roughly the same job, would cost... oh, £500 - £600 quid.

From both the examples above, I feel it's pretty clear that whilst capabilities have increased, the price of staying put on the obsolence curve is exactly the same, simply because by the time you come to purchase an equivalent replacement product, the original item either no longer exists, or its technical properties are precisely the reason you are upgrading.

* As in, "the numbers on the spec sheet have got bigger". Based on these, computer prices would offer near-infinte deflation since the early 50s.

Actually I agree with you, but what you're talking about is my point e) - that hedonic regression should not be used.

This is an example of hedonic regression.

Year 1: The computer used in the basket is a dell Pentium 1 computer with a 5GB hard disk and 128 MB of RAM. It costs £1000. It runs all the usual programs available.

Year 5: The computer used in the basket is a dell Core2duo with a 120GB hard disk and 2GB of RAM. It costs £1000. It runs all the usual programs available.

Hedonic regression says that the price of computers has gone down, since the year 5 computer is so much more powerful than the year 1 computer. It equates power with utility. I think that this could be dubious, or at least that the effect should be reduced, since the amount of "utility" added is clearly not linear with power.

My memory stick example is different. Perhaps this wasn't the best example, but there are clearly situations where utility IS linear with "capability". In the short term, I would argue that memory sticks are one of them. The amount of word documents that you can fit on a memory stick per £1 of expenditure does absolutely go up if the price per GB goes from £5 to £1. This is very much deflationary, and where you are on the obsolescence curve is irrelevant.

Edited by auk

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The big lie about inflation (How the TRUE cost of living is being hidden)

The big lie is that CPI measures what the layman understands inflation to be.

CPI itself isn't false... it simply measures something almost entirely unrelated to what people think it measures.

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Inflation should be measured on the basics you need to live:

So a sensible range of food (bread, eggs, fruit, veg, meat), fuel, water rates and housing costs.

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Inflation should be measured on the basics you need to live:

So a sensible range of food (bread, eggs, fruit, veg, meat), fuel, water rates and housing costs.

ARGGHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHH.

No. It really shouldn't. Did you read my examples above? If so I'll have another go at explaining.

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Dont waste breath with all this debate.

Alistair Darling announced in the budget that the Treasury is working on a new, "comprehensive and robust" House Price Index, which will be used to base payouts for his new House Price Insurance scheme

It will be so comprehensive and robust that it will only go up!

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The big lie is that CPI measures what the layman understands inflation to be.

CPI itself isn't false... it simply measures something almost entirely unrelated to what people think it measures.

...or what people think it should measure.

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ARGGHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHH.

No. It really shouldn't. Did you read my examples above? If so I'll have another go at explaining.

But if thats *all* I spend then that's the only inflation I need to know about. Measuring how many luxury items I buy or how much they've gone up doesn't make sense.

Are you measuring life inflation costs or luxury goods inflation? maybe there should be two distinct sets and then they can pick whichever figure suits them best.

Inflation on the normal person is most accurated rated by looking at the basics for life.

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My memory stick example is different. Perhaps this wasn't the best example, but there are clearly situations where utility IS liner with "capability". In the short term, I would argue that memory sticks are one of them. The amount of word documents that you can fit on a memory stick per £1 of expenditure does absolutely go up if the price per GB goes from £5 to £1. This is very much deflationary, and where you are on the obsolescence curve is irrelevant.

Memory sticks are very, very interesting one to consider, not because of what they are, but because of what they do. Personally, I don't think you can view them in isolation, because fundamentally there are portable read \ write storage and data transfer systems. They are, depending on the use they are put to, in the same category as floppy discs, rewritable CDs and DVDs, hosted file space, email, and any number of means of achieving the same end.

To my mind, the comparison with the floppy is exceptionally valid. For sake of argument, go back to the early nineties, and consider how many documents you could fit on a floppy. Unless you were planning on carting around reams of the things, the answer is "enough". It could even be argued that you could cart about your word processing software on said floppy as well. As things stand, the floppy is dead and buried. They just don't have the capacity to make them useful, so we use other means of data transport. When considering memory sticks, I feel they should be looked at from a "do they carry enough for modern data requirements" perspective, rather than an absolute capacity perspective.

When it comes to tech issues, I feel the obsolescence curve is an exceptionally complex and dangerous beast, and comparing like with exceptionally difficult, simply because the comparison is not between product A in year Y and product A in year Z, but between functional requirement A in year Y and functional requirement A in year Z.

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...or what people think it should measure.

Sorry, but I'm going to pedantic. People who think CPI should measure something else are stupid. I agree, the metric is socially unjust and has been counter productive. A new fiscal policy is required, not an amended CPI.

Even Eurostat (i.e. the people who invented HCIP - aka CPI) warn that the index should not be used as a definitive measure of inflation for fiscal policy. CPI is very clearly defined, and if it's the wrong tool for the job you should find another that meets your requirements.

When I find that "peek power" is a rubbish way to compare hi-fi loudness, I don't demand "peak power" is measured differently... I chose to consider"RMS power" instead - because it more closely correlates with what I'm interested.

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My memory stick example is different. Perhaps this wasn't the best example, but there are clearly situations where utility IS linear with "capability". In the short term, I would argue that memory sticks are one of them. The amount of word documents that you can fit on a memory stick per £1 of expenditure does absolutely go up if the price per GB goes from £5 to £1. This is very much deflationary, and where you are on the obsolescence curve is irrelevant.

Starting to split hairs here, while what you are saying is true in a pure sense it's also true that technology has changed to use up that spare space. If it was all about word files then yep an increase in space would offer the same utility.

For example when I was a college we were told that you could fit the average novel on to a standard floppy disk. However a 10-15 page word document will be to large to fit on one these days. Now we are in a situation where even DVD's struggle to offer decent storage when a few years ago everybody thought that 4.5Gb would be all they would need in a life time. As the power of computers increases so does the storage capacity needed to operate the programs become bloated.

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Inflation on the normal person is most accurated rated by looking at the basics for life.

Thanks, but I prefer not to have someone else dictate what is essential in my life.

I'm not content to live a minimal subsistence... where the cheapest protein, carbohydrates, vitamins and minerals are the only real essentials... I'm not willing to let you dictate my diet.

I do not agree with a fiscal policy that encourages a race to minimise material wealth for the majority of the population.

Edited by A.steve

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But if thats *all* I spend then that's the only inflation I need to know about. Measuring how many luxury items I buy or how much they've gone up doesn't make sense.

Are you measuring life inflation costs or luxury goods inflation? maybe there should be two distinct sets and then they can pick whichever figure suits them best.

Inflation on the normal person is most accurated rated by looking at the basics for life.

Right.

One valid criticism, as I described above is

"f) This is not MY CPI – I spend my money in a completely different way to the way that the index suggests. E.g. I spend only 3% of my income on Clothing and Footwear rather than 6%."

If you only spend money on food, fuel, water and housing costs then your personal CPI is VERY different from the average person's CPI. However I don't really believe you. Nobody who is posting on an internet forum fits into this category.

CPI is meant to measure the increase in the cost of goods for the average person, given what they actually spend their money on.

Let me just use one more example, and then I'm giving up.

Example:

You earn £1000 per year. You buy only two goods. "Essential" (non-discretionary) goods and "luxury" (discretionary) goods.

In year 1, each unit of essential goods costs £1 and each unit of luxury goods costs £1. You buy 500 units of each. I.e you are not in poverty. You have some discretionary spending.

Let's take two options for year 2.

Option 1: Essential goods go down in price to 50p per unit. Luxury goods go up to £250 per unit. You buy 500 units of essential goods and 3 units of luxury goods.

Option 2: Essential goods go up in price to £1.50 per unit. Luxury goods go down to 50p per unit. You buy 500 units of essential goods and 500 units of luxury goods.

Which option would you choose?

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....................

Lots of good points about memory sticks.

.............

Anything to do with measuring inflation of technology goods is massively complicated. The underlying issue is that its very difficult to separate the three factors of "price per unit of performance" "price per unit of utility delivered" and "price for a standard, typical product at a particular point in time".

Unless you decide which one if the correct measurement, its very difficult to work out what the right methodology is. As I understand it, current policy is to measure "price per unit of performance". I'm not sure I agree with this. I think that it should be price per unit of utility delivered, but I can see the argument for having "price for a standard product, irrespective of performance/utility".

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Unless you decide which one if the correct measurement, its very difficult to work out what the right methodology is.

The market is remarkably able to establish the right method - assuming you believe that consumers have free will.

Measuring the market remains a problem, however. :-)

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  • 297 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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