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Inflation is differential and restructuring (2021)

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Re: Inflation is differential and restructuring (2021)

#11

Post by tlb »

fallingfrog wrote: post #10
littlestymaar wrote: post #8

The biggest argument against inflation as a monetary phenomenon right now is the foreign exchange rate: inflation is higher in the US than in the Eurozone, while a dollar is worth significantly more euros than what it was worth a year ago. In fact, if your salary is labelled in dollar and you live in Europe, your purchasing power increased in that period, which shows that the current level of inflation in the US isn'…

Wait.. how can that be true? If a dollar last year is worth .5 dollars today, and a Euro last year is worth .8 Euros today, then surely the value of the dollar against the Euro has declined to .5/.8 of what it was last year?

Exchange rates affect inflation for imports, but not for domestic goods. So varying exchange rates by 5% might only change inflation by 1-2% (depending which inflation metric you use).

Like many things in macroeconomics, the exchange rate / inflation relationship should be true in equilibrium. But several things are out of equilibrium right now due to supply chain disruptions and a demand surge after the pandemic.

Re: Inflation is differential and restructuring (2021)

#12

Post by Proven »

imtringued wrote: post #4

The author talks about how accounting identifies are weird gotchas but the problem here isn't that there is a weird gotcha, the problem with MV = PT is that pretty much all variables are unknown except the general price level. Nobody knows what the real quantity of money is, nobody knows what the velocity is since it would require marking individual dollars and counting how many times they change hands.

[dead]

Re: Inflation is differential and restructuring (2021)

#13

Post by bojangleslover »

Why can't it be both monetary and non-monetary? Say it's a vector, one element per CPI category. Throw housing in for good measure.

The direction of this vector can change due to non-monetary stuff like Russia and oil. But if all of the categories, especially those without clear non-monetary drivers, rise, then it's also monetary.

So maybe X = p_monetary + Q_nonmonetaty where p is a scalar and Q is a vector.

I think it is both. But the monetary side is controllable by our constituency. Friedman was still right.

Re: Inflation is differential and restructuring (2021)

#14

Post by j7ake »

Inflation can be thought of as a high dimensional vector with dimensions equal to the number of objects you buy with money.

Each person is affected by this inflation differently because they buy different things.

To “solve” this problem, the government has decided to collapse this high dimensional object into a scalar number.

And now we are seeing a divergence between this scalar number and the actual high dimensional object.

Today with digitised transaction records, there is a ripe opportunity to convert these records back into a person-specific , high-dimensional object with pretty visualisations to aid with understanding.

Re: Inflation is differential and restructuring (2021)

#15

Post by roenxi »

If this perspective carries the day - which is plausible - then all it will reveal is that basically nobody in the voting public should care about inflation:

1) Inflation is not a useful metric for financial planning. If your investments are keeping pace with inflation then you have completely failed to position yourself correctly relative to the massive money creation going on. The gold price trend is posting consistent real returns vs the CPI - which is stupid (if you believe the CPI measures inflation, anyway).

2) Inflation isn't a fair metric for referencing on wage raises. Again, we can see that wage earners are slowly getting crushed as a % of the economy [0]. If they are focusing on keeping up with the CPI then they'll get distracted from the fact that they could be doing a lot better if they could re-link wages with productivity.

3) Nobody knows how the CPI is calculated. If someone can find out the actual methods, weights and inputs then report back you get a virtual gold star. I did it once and it is a labyrinth to work out what they are actually measuring - I don't believe more than a small fraction of the people debating inflation understand or care about the details of what it measures.

To cap off a mild rant; it is not obvious why we care about what the truth about inflation is. Few people understand the number and it is unclear what use it is for decision making.

The more concerning factor is that the government is creating money on a grand and accelerating scale and that is going to end badly, like it always does. Cite some examples where it has led to a golden age? Printing money literally does not and cannot plausibly solve real problems.

[0] https://www.weforum.org/agenda/2020/11/productivity-workforc...

Re: Inflation is differential and restructuring (2021)

#16

Post by em500 »

aeternum wrote: post #5

The non-uniformity of inflation is interesting and has been brought up by many economists recently. I wonder if eventually the Fed will try to track inflation as a vector rather than a single number.

The BLS already publishes per category CPIs, alongside the aggregates[1]. Presumably you'd want the Fed to use different weights than the BLS (overweight "necessities"?) for monetary policy. But they already do, they vastly underweight food and energy prices, using "core inflation"[2]. (Besides, they typically use the BEA PCE deflator[3], rather than BLS CPI for monetary policy.)

Occasionally you'll hear that this is part of some government conspiracy to suppress true cost of living measures or some such. I think that's largely nonsense as CoL adjustments in government departments are always done with plain CPI, only the Fed uses Core. The logic of using Core (excl. food and energy) is mostly pragmatic, it's just a simple smoother, they could also use trimmed or rolling averages. The raw inflation is pretty volatile, based on that they'd have to adjust policy rates up and down all the time.[4]

[1] https://www.bls.gov/news.release/cpi.t01.htm

[2] https://en.wikipedia.org/wiki/Core_inflation

[3] https://www.bea.gov/data/personal-consumption-expenditures-p...

[4] https://krugman.blogs.nytimes.com/2010/02/26/core-logic/ (Sorry, can't find a non-paywalled link)

Re: Inflation is differential and restructuring (2021)

#17

Post by [deleted] »

bojangleslover wrote: post #13

Why can't it be both monetary and non-monetary? Say it's a vector, one element per CPI category. Throw housing in for good measure. The direction of this vector can change due to non-monetary stuff like Russia and oil. But if all of the categories, especially those without clear non-monetary drivers, rise, then it's also monetary. So maybe X = p_monetary + Q_nonmonetaty where p is a scalar and Q is a vector. I think…

[deleted]

Re: Inflation is differential and restructuring (2021)

#19

Post by a3w »

schemescape wrote: post #3

The title makes this sound like another conspiracy theory about the government suppressing inflation in official numbers, but the article is actually a rational dive into the non-uniformity of inflation across various categories. The last section attempts to link "differential" inflation to oligopolies, and I'm not sure I buy their arguments there, but it's thought-provoking nonetheless!

Did not have that idea when I read the title. Then again, I accept every view of inflation as just another well-intentioned guess as to what that actually is, since nobody can agree as to why we actually observe it IRL.

For me that applied even to the (second?) Zeitgeist movie on monetary theory, which was a very opinionated or even conspiratory view on the financial system, yet that was the model that actually stuck for me: Due to a single interest rate that was once taken higher than zero, there now is never enough money to pay back all debts. AKA there is no money, it just represents some else's debt.

Re: Inflation is differential and restructuring (2021)

#20

Post by BirdieNZ »

littlestymaar wrote: post #7
EdwardDiego wrote: post #6

Earlier quoted context omitted.

Indeed, it always annoyed me when the CPI a) excludes actual costs of living and b) alongside things like "food" included "flat-screen TVs". Staple foods might cost 25% more, but hey, those TVs are down 20%, so yay! An old company of mine was very proud that everyone's payrise began equivalent to CPI increase, before any other performance related increases. That was nice, but it's a CPI that excludes rent/mortgage pa…

> Staple foods might cost 25% more, but hey, those TVs are down 20%, so yay! It's even worse than that because most of the time the TV price don't really goes down by 20%, but by 3% and hedonic adjustment makes it appear as if it went down by 20% in CPI because some people estimated that going from HD to 4K increased the value by 17% … That's how we get figures saying that computers cost 20 times less than what they…

> That's how we get figures saying that computers cost 20 times less than what they used to be when in reality it costs a little less than 2 times less.

Can't you buy old PCs for 20 times less than a (second-hand) modern PC?

I bet this Pentium 4 desktop cost around NZ$2000 new: https://www.trademe.co.nz/a/marketplace/computers/desktops/n... but now it's going for NZ$100.

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