Inflation Rates

[Art Eatman]

Ignoring a lot of the Wal-Mart items, I read--and sorta recollect--that what cost $1,000 in 1971 is now likely to cost some five times more.  Four, anyhow.  That certainly works for land, cars and houses.  Somewhat for guns and outboard motors.  Low for medical costs.  (Well, houses, also, for that matter.)

I got to playing with the Rule of 72 concerning doubling periods.  That is, you divide a perceentage rate into 72 and that tells you the length of time for doubling.  Or, divide a doubling period into 72 and that gives you a percentage rate:  Inflation, in this case.

So:  If by five, that's 2.5 doublings in 35 years.  That works out to 5.1% inflation.  If by four, that's two doubling periods, which works out to 4.1%.

How come we keep being told of 2% and 3% inflation?

Art

[Sindawe]

How come we keep being told of 2% and 3% inflation?

Because those who've made it their buisness to run our society have determined that the folks in fly-over country don't need to have true facts on the economy, but rather should have "good facts" that paint the picture that everything is coming up roses.

[The Rabbi]

How come we keep being told of 2% and 3% inflation?

Because those who've made it their buisness to run our society have determined that the folks in fly-over country don't need to have true facts on the economy, but rather should have "good facts" that paint the picture that everything is coming up roses.

That makes a nice conspiracy theory (see other thread).

The simple explanation is that from about 1976 (Remember Pres Ford WIN?) to 1981 inflation was running about 10-12% a year.  2-3% inflation is right now.  Average out all the years and you will get 5% figure you got over 30 years.

[wingnutx]

Well that's no fun.

[The Rabbi]

Well that's no fun.

Ok Ok, actually the Fed has been manipulating the rates all along to hide the fact that we are sending all this money to Israel.  Bernanke, Greenspan, Volker, Burns.  What do you think they all have in common?  Hmm?
People will see their standard of living eroded away and want to make war against the Arabs for cheap oil.
It all fits!

[Headless Thompson Gunner]

Ignoring a lot of the Wal-Mart items, I read--and sorta recollect--that what cost $1,000 in 1971 is now likely to cost some five times more.  Four, anyhow.  That certainly works for land, cars and houses.  Somewhat for guns and outboard motors.  Low for medical costs.  (Well, houses, also, for that matter.)

I got to playing with the Rule of 72 concerning doubling periods.  That is, you divide a perceentage rate into 72 and that tells you the length of time for doubling.  Or, divide a doubling period into 72 and that gives you a percentage rate:  Inflation, in this case.

So:  If by five, that's 2.5 doublings in 35 years.  That works out to 5.1% inflation.  If by four, that's two doubling periods, which works out to 4.1%.

How come we keep being told of 2% and 3% inflation?

Art

Infaltion has been running some 3% a year, but only for the last decade or so.  Go back and check the yearly inflation rates for all of the past 35 years.  I bet you'll find that it has't been 3% the entire time.

Further, you have to account for the fact that goods have increased in value over the years.  Most of the products we buy today do indeed cost more than in years past, but they also tend to be worth more.  This necessitates some adjustment in the calculation of inflation.  Simply put, inflation doesn't account for ALL increase in the cost of goods, only for a portion of it.

Take cars for an example.  A basic car from 30 years ago may have cost 1/5th of what a basic car costs today, but that doesn't necessarily mean that the inflation in car prices was 5X.  A 2006 car has air conditioning, curise control, power windows, power locks, power brakes, power steering, air bags, anti-lock brakes, a CD player, and on and on.  Your 1970 car probably doesn't have any of that.  A significant portion of that 5-fold increase in car prices is due to the fact that modern cars simply have so much more value built into them.  If you said the entire 5X increase in the price of the automobile was due to inflation, then you'd be dramatically overestating the loss in purchasing power of the dollar.

Conspiracy theorists like to point to these adjustments as evidence of a grand coverup.  They say the Fed (or the Man, or whomever) is manipulating the numbers to hide from the population the fact that inflation is really 5% or 10% or 15% or whatever.  But it simply ins't so.  These adjustments are necessary to make sure the inflation numbers are as accurate and reliable as possible.

[The Rabbi]

Good point.
On medical costs, one could not compare the quality of medical services of 30 years ago with today.  I could go on at some length about this but suffice it to say no one would want to get 1973 medicine, even at 1973 prices.

[Perd Hapley]

no one would want to get 1973 medicine, even at 1973 prices.

I don't know about that.  Was Timothy Leary practicing in 1973?  

[The Rabbi]

no one would want to get 1973 medicine, even at 1973 prices.

I don't know about that.  Was Timothy Leary practicing in 1973?  

I don;t know.  But look where he is today.

[BozemanMT]

well, the inflation numbers are a joke, and have been for 20 years.
let's see, remove food and gas, because of course nobody needs to drive to work or eat.
Those are much too volitile.  (and of course, it's not like they go down)
They also use all the adjustments that this computer costs the same as that older computer but this one is better, therefore inflation is negative.
Of course, this only works if you could still buy that old computer, and you can't.
so, in your car example I can't buy a car without all those improvements, so the inflation is valid.
and of course, housing inflation is figured by rent, not by price of housing.  (yes, it's true, look it up)

but the inflation number is pretty good compared to the unemployment statistics.
Talk about being juggled.
If you have been unemployed for more than 6 months, you are no longer counted as "looking for a job"
If you you figured unemployment the same way they did in 1984, the figure would be 7 to 8%, not 4 to 5% as they claim now
That's a big difference.

[Headless Thompson Gunner]

well, the inflation numbers are a joke, and have been for 20 years.
let's see, remove food and gas, because of course nobody needs to drive to work or eat.
Those are much too volitile.  (and of course, it's not like they go down)
They also use all the adjustments that this computer costs the same as that older computer but this one is better, therefore inflation is negative.
Of course, this only works if you could still buy that old computer, and you can't.
so, in your car example I can't buy a car without all those improvements, so the inflation is valid.
and of course, housing inflation is figured by rent, not by price of housing.  (yes, it's true, look it up)

but the inflation number is pretty good compared to the unemployment statistics.
Talk about being juggled.
If you have been unemployed for more than 6 months, you are no longer counted as "looking for a job"
If you you figured unemployment the same way they did in 1984, the figure would be 7 to 8%, not 4 to 5% as they claim now
That's a big difference.

If you computed it the same way they did in 1984, the numbers wouldn't square with reality.  8% inflation means that our standards of living are decreasing by 8% every year, offset by whatever increase in wage we've received.  And I haven't had a raise in some 5 years.  

I dunno about you, but my life certainly isn't 8% worse this year than it was last year.  It definitely isn't 16% (actually 16.6%) worse than it was two years ago.  2% to 3% annually is something I might be able to believe, but 8% per year is just plain absurd.

[Declaration Day]

Take cars for an example.  A basic car from 30 years ago may have cost 1/5th of what a basic car costs today, but that doesn't necessarily mean that the inflation in car prices was 5X.  A 2006 car has air conditioning, curise control, power windows, power locks, power brakes, power steering, air bags, anti-lock brakes, a CD player, and on and on.  Your 1970 car probably doesn't have any of that.

I'd like to add to this that cars are far more reliable than they were in 1970, and by comparison, are almost maintenance-free.

They also have a much longer lifespan, due to more corrosion-resistant materials and powertrain longevity.

I remember when I was a kid, cars didn't have a hundred-thousands place on the odometer, because it was expected to be ready for the junkyard at 80,000 miles.  We have a 1998 Caravan with 82,000 on it, and it runs great.  It's not uncommon for a modern car to go 150,000+ (250,000+ for a Honda or Toyota) with no major repairs.

[thebaldguy]

Inflation numbers are often twisted; on the news they stated the official inflation rate minus energy. What is this? My natural gas/motor fuel isn't figured into the equation? Inflation of energy prices doesn't count? It would make the numbers higher that some government officials would like. They don't want to look bad to the public.

A similar situation occurs with the unemployment figures. If we calculated unemployment in the same way as calculated during the depression, our current rate would be 8-12%.

[BozemanMT]

well, the inflation numbers are a joke, and have been for 20 years.
let's see, remove food and gas, because of course nobody needs to drive to work or eat.
Those are much too volitile.  (and of course, it's not like they go down)
They also use all the adjustments that this computer costs the same as that older computer but this one is better, therefore inflation is negative.
Of course, this only works if you could still buy that old computer, and you can't.
so, in your car example I can't buy a car without all those improvements, so the inflation is valid.
and of course, housing inflation is figured by rent, not by price of housing.  (yes, it's true, look it up)

but the inflation number is pretty good compared to the unemployment statistics.
Talk about being juggled.
If you have been unemployed for more than 6 months, you are no longer counted as "looking for a job"
If you you figured unemployment the same way they did in 1984, the figure would be 7 to 8%, not 4 to 5% as they claim now
That's a big difference.

If you computed it the same way they did in 1984, the numbers wouldn't square with reality.  8% inflation means that our standards of living are decreasing by 8% every year, offset by whatever increase in wage we've received.  And I haven't had a raise in some 5 years.  

I dunno about you, but my life certainly isn't 8% worse this year than it was last year.  It definitely isn't 16% (actually 16.6%) worse than it was two years ago.  2% to 3% annually is something I might be able to believe, but 8% per year is just plain absurd.

read it again, I highlighted the relevant part.
You didn't read it correctly.

[Headless Thompson Gunner]

My mistake.

The sentiment remains accurate, however.  If inflation were anything other than negligible, it would be obvious and undeniable.  There'd be wailing and gnashing of teeth nationwide.  Just look at what happens whenever gas prices go up 8 or 10%.  Can you imagine the outcry if prices on EVERYTHING went up that much, year after year, and never came back down?

The formal inflation numbers are as honest and accurate as humanly possible, period.  There will always be some degree of error, due to the fact that accuracy requires adjustments.  There is no systematic attempt at skewing the numbers to make the politicians look better, or to hoodwink the polulation, or whatever else.  They are our best atempt at quantifying reality.

Think about it for a moment.  If things were so bad that The Man needed to falsify the inflation numbers, then wouldn't reality speak for itself?  Wouldn't it be so bad that everybody would know how bad things were WITHOUT having to resort to economic indices?

You can doubt the official inflation numbers if it helps you sleep at night.  I care not.  But you'd have to be one seriously hardcore pessimist, and somewhat tin-foiled as well, to think that inflation has remained on the order of 10% for the past decade.

[Telperion]

If you remove everything that's going up in price, the inflation forecast sure looks great!

In addition to omitting food and energy, another way the CPI hides inflation by replacing housing prices with owner's equivalent rent -- what the owner would pay to rent an equivalent unit.  Rental prices have been depressed by the housing boom, and now may start ticking up with people exiting the housing market.  If this trend plays out, listen for noises to boot OER from the CPI.

Take cars for an example.  A basic car from 30 years ago may have cost 1/5th of what a basic car costs today, but that doesn't necessarily mean that the inflation in car prices was 5X.  A 2006 car has air conditioning, curise control, power windows, power locks, power brakes, power steering, air bags, anti-lock brakes, a CD player, and on and on.

Glad you brought this up.  The BLS uses a quality adjustment model to control for increases in quality and value of goods.  For example, according the TIME magazine, the average cost of a new car rose in 2005 by $467, but only $386 of that counted in computing the CPI.  According to BLS, from 1976-2006, the quality-adjusted price index for new cars increased from 67.0 to 137.6 -- a factor of 2.04x.  So, is the cost of a new car today twice what it was 30 years ago?

[Headless Thompson Gunner]

Sigh...  Some people just want justification for being miserablee, I guess.

Car prices are up in recent years, due in large part to the struggling automotive industry.  The auto makers have painted themselves into a corner by promising the unions they would support workers for their entire retirments.  Now the makers find themselves forced to spend some $3,500 to $4,500 of the price of each new care to support the retirement obligations to workers that aren't even making new cars any longer.  This cost doesn't contribute to the quality of their cars, but it does dramatically increase the price of the vehicles.  It influences inflation numbers, because it's an increase in the price of the final product, but it isn't accurate to say that it represents a decrease in the value of the dollar.  You pay more, but that's not because your dollar is worth less.  It's because you're buying more:  you're buying a car AND a share in the UAW workers' retirement plan, not just a car as you would have in years past.

Further, the marketing strategy for selling new cars has changed dramatically over the past decade.  Retail prices for new cars are arbitrarily inflated, which tends to make them look more valuable and attractive to purchasers.  New vehicles are purchased almost exclusively on credit these days.  The inflated prices are either credited back to the purchaser in the form of rebates and attractive finance terms, or are retained by the dealer.

For example:
Start with your basic car with $15,000 of "quality" built into it, then and add in the $4,000 of UAW welfare state costs.  You car is costs $19,000 to bring to market.  Jack the retail price up by $10,000 and give the car a sticker price of $29,000.  Offer a $4,000 rebate and "free" financing incentives worth $2,, then go ape-*expletive deleted*it with your marketing plan so that everyone knows they can get a $29,000 car for only $23,000.  The dealer or the manufacturer can pocket that last $4,, which the average semi-literate consumer is too stupid to know he's paying.

The net result is that a car with $15,000 worth of quality inside is sold for $23,000.  That $8,000 difference in price amounts to an apparent inflation on the order of 30%.  But is that really inflation?  Does that really represent a loss in purchasing power of the dollar?  Or is it simply a result of a poor business management and a good dose of consumer stupidity?

[steveO]

How come we keep being told of 2% and 3% inflation?

I think you know the answer to that, but for some reason you seem scared to touch it:  the federal government is a group of systematic pathological liars.  Since this includes bush, I think that's why you're afraid to touch it.

[Guest]

How come we keep being told of 2% and 3% inflation?

I think you know the answer to that, but for some reason you seem scared to touch it:  the federal government is a group of systematic pathological liars.  Since this includes bush, I think that's why you're afraid to touch it.

I think you need to try reading the whole thread.

[Telperion]

Sigh...  Some people just want justification for being miserablee (sic), I guess.

Please spare us your Al Gore impression.

Hate to throw cold water on all you wrote, but BLS does not just grab the sticker price as their base for CPI data.  Say what want about some of their motives, but they're not that stupid.  From the BLS Handbook of Methods: When pricing new vehicles, BLS economic assistants obtain separately all of the components of the sticker price. This includes the base price and the prices for options, dealer preparation, transportation, and so forth. In addition, they obtain from the dealer the average rebate, concession, and/or markup during the preceding 30 days. This enables BLS to estimate the true transaction price.

I don't really care to continue about vehicle pricing, since it is only a specific example of how the CPI is manipulated in questionable ways to exclude items rising in price, or attenuate the magnitude of price increases.

[Art Eatman]

Well, I realize that stuff that's left out of the calculations for the CPI don't affect the published CPI.  Houses, for example, are not included.  I may be wrong, but I believe cars were taken out not too many years back.

Assumptions for the "market basket" play a part.  For example, it is fact that the calculations for foods include the assumption that if a brand name food jumps in price, Mrs. Housewife will buy generic asparagus instead of Jolly Green Giant.  Sure, a few will, but overall?  These people must be bachelors.  Folks are gonna switch from Charmin toilet paper to John Wayne toilet paper*?

I don't see all prices rising equally--and I see few declining, outside of computers.  Lumber, for instance.  The last few years have seen a doubling in steel.  Transportation cost add-ons are now trickling down.  Reloading components are climbing rapidly in cost.  A couple of years back, it was newsprint, which was forcing some magazines out of business.

I keep seeing 10%, 20% or even more as increases in some prices.  They may then stay static for a while, but they don't stay static for long.

I'm retired from the dirtwork business, but don't think that today's diesel prices wouldn't raise my hourly rate for my backhoe.  Or gas, for my dumptruck.  That translates to higher costs for septic systems and slabs.

Art

*  "It's rough, it's tough, it don't take no *expletive deleted*it off nobody."

[LAK]

These people admit to exactly how much they are stealing from us?

--------------------------------------------

http://ussliberty.org
http://ssunitedstates.org

[HankB]

I read--and sorta recollect--that what cost $1,000 in 1971 is now likely to cost some five times more.

Someone's been peeking at the government's numbers.

At the Bureau of Labor Statistics (www.bls.gov) they have Consumer Price Index information available. Using the stats that had 1967 at a baseline of 100, you  can see that for August 1971 the urban consumer CPI was 122.1, and for August 2006 the CPI was 610.9. The ratio for the two  is - to three decimal places - (drum roll, please)  5.003

A lot of the inflation came during the Carter years - remember mortgage interest rates in the teens? (Of course, T-bill rates were pretty good, too.)

Not everything has risen 5x in this period. What was the selling price of an S&W M29 in the early '70s? I don't think it was 1/5 of what a 629 is going for today. 500 rounds of Remington "Thunderbolt" .22 ammo can be had for around $10.90 . . . I don't think it was as cheap as $2.18 (that's under 22 cents a box!) in 1971.

A decent 27" color TV today can be had for $300. Was it only $60 in '71? I don't think so.

On the other hand, gasoline was just over 30 cents a gallon back then - now the tax alone is more than that. My first car - a '73 Pontiac - had a sticker around $5500. My newest car is over $30k . . . but it's better than the Pontiac, with it's early smogger motor that barely ran until I pulled off half the "government" plumbing.

What really HAS changed, the LARGEST component of inflation, is TAXES. I'm paying more for TAXES than I am on food, clothing, shelter, and transportation COMBINED.

[The Rabbi]

I pay more for insurance than for any other single item.

[BozemanMT]

.

I'm retired from the dirtwork business, but don't think that today's diesel prices wouldn't raise my hourly rate for my backhoe.  Or gas, for my dumptruck.  That translates to higher costs for septic systems and slabs.

Art

exactly
I run a weed mowing business on the side.  Last year we were at $65 at hour at the end of the season (had started at $60)
This year we are at $75 an hour and it's all because of diesel costs.
I have a friend who's a carpenter.  3 years ago he charged $45 an hour, now he charges $60 and he bills for gas surcharges if the job is more than 20 miles away.  (he's a really good trim carpenter, he can get away with this)
Concrete is now $95 a yard, it used to be $55 a yard less than 3 years ago plus teh delivery charge is up.

but hey, there's no inflation.