EDIT: I probably should have used "express" rather than "capture", apologies.
The question is, how good is the approximation and how meaningful is an average statistic?
The statistic is useful and meaningful, but doesn't say everything. Fortunately we have hundreds of inflation metrics, for different groups (urban, rural), age groups, countries, states, regions and sectors.
Virtually none of these are published in media outside the general CPI measure, but all can be found on government/centralbank/consultants etc websites, typically with methodological sections explaining how they came to their conclusions.
For example: https://www.bls.gov/cpi/home.htm
Here you can find various inflation figures, methodology and data.
Indeed (as you edited), the national inflation figure can 'capture' it in the statistic sense, but cannot capture it in the sense that the number expresses individual paint points that different subsections of the population experiences, like rent in a HCOL urban area, or the inability for wages to catch up with an ever increasing downpayment requirement.
Every European capital / big city has seen absolutely massive increases in rent and house prises since the ECB started printing money. (Housing sector if very 'close' to the banking sector and so more directly affected by the availability of cheap credit). Not causes by the ECB 100%, but accelerated by it nonetheless.
But if the cost of all other goods has stayed the same, plus the rent and house prises in rural areas has been normal or even dropped, inflation on average will be ok.
(And then the ECB says: inflation is less than 2% _on average_ so no problem here. print. print.. print...)
For Brussels at least, that is simply not true. See the graph in section 'Brussels Hoofdstedelijk Gewest' of [1] for the evolution of real estate prices in the Brussels region since 2008. There are also strict rent controls in Belgium: if you are renting your landlord can increase the rent with inflation, but not more. Every three years the landlord can theoretically increase the price, if he has made improvements to the property or he can prove that the rental value has objectively increased by more than 20% (which is hard, if there are disputes courts tend to side with tenants).
[1] https://statbel.fgov.be/nl/themas/bouwen-wonen/vastgoedprijz...
This assumes the numbers accurately represent reality. Here in Canada, the shelter component of our CPI numbers do not reflect at all the massive price inflation that has been occurring in both buying and renting shelter.
https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=181000...
If one was to take their numbers at face value, you would conclude that shelter price inflation is generally consistent with all other goods, and that it has been consistent across all regions, neither of which is true.
Printing money is what central banks do. It's what every Eurozone nation used to do with their own money as well before switching to the Euro. So unless you can explain what the ECB does differently that makes this worse than the central banks before it, you don't really have much of an argument.
Is it printing money faster than the central banks before it did? If so, give some numbers and sources please.
And in general, be explicit about your claims, because as written you're practically suggesting that the Eurozone is acting like the Weimar Republic.
Search "FED balance sheet vs S&P" or something similar. E.g. http://whattheythink.com/data/84893-feds-balance-sheet/
Inflation is a vague concept. When people try to measure inflation, they're using filters and aggregates. Criticism that those filters and aggregations are distorting the view (for political purposes) is valid and a frequent motivation to publish academic papers.
tl;dr Of course it can.
What we see in our everyday lives is sometimes called "price inflation", i.e. prices rising, and that can happen disproportionally.
As a US-centric example, computer prices have been gradually decreasing, while healthcare and housing costs have skyrocketed.
So an increase in the supply of money is separate from an increase in "a concentration" of money in a "market area" like healthcare, and productivity and material costs and whatever else factors into prices at any given time.
Of course, an increase in the supply of money factors into prices where ever the money goes.
This is not true unless you live in early 1900's or only surf some crackpot websites.
In the language of economics inflation without specifics means price inflation. If you mean monetary inflation, you must use two words.
Increasing money supply is not going to prices if
1) economy grows and demand for money matches the supply or
2) velocity of money decreases. https://fred.stlouisfed.org/series/M2V As a thought experiment: If you mint a trillion dollar coin but are not using it, monetary supply increases radically but it has no effect on price inflation because it has zero velocity.
"Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output. … A steady rate of monetary growth at a moderate level can provide a framework under which a country can have little inflation and much growth. It will not produce perfect stability; it will not produce heaven on earth; but it can make an important contribution to a stable economic society."
That's not so say that many don't hold the belief you have (i.e. that inflation should be understood primarily as price inflation, and monetary inflation is a secondary consideration). But it's not the only mainstream opinion.
Friedman simple quantity-of-money rule policy didn't withstood the test of time.
His idea that flexible exchange rates make inflation purely domestic issue is the cornerstone of economics. No good economist today believes that unemployment and deflation should be preferred for currency devaluation thanks to Friedman.
Friedman spend his life trying to prove that there had never been in history a monetary supply growth without being followed by inflation. What he didn't try to prove was that monetary supply growth always is followed by inflation.
But I think 10 years ago there were definitely mainstream people who at least claimed to believe the "inflation is always a monetary phenomenon". Still, it sounds like you are more up to date on this than I am so I appreciate the clarification.
This is correct even today. Among politicians and pundits there is completely different economic discussion and it's really confusing.
You know, if you would give top 1000 dry academics in any field a way to flag news media or opinion pieces in their specialty with visible [extraordinary or surprising claim] -flag if they do it with 4/5 majority it would be really helpful public service (startup someone?)
Probably. It's strange how the only school of economic thought that actually corresponds to reality is the one shunned as "pseudoscience" or something.
Go see for yourselves: http://mises.org
>I think the Austrian business-cycle theory has done the world a great deal of harm. If you go back to the 1930s, which is a key point, here you had the Austrians sitting in London, Hayek and Lionel Robbins, and saying you just have to let the bottom drop out of the world. You’ve just got to let it cure itself. You can’t do anything about it. You will only make it worse. You have Rothbard saying it was a great mistake not to let the whole banking system collapse. I think by encouraging that kind of do-nothing policy both in Britain and in the United States, they did harm.
Can you come up with an argument against Austrian Economics in your own words, or are you content trying to discredit it with an appeal to Milton's authority?
I could argue against the quoted passage but I don't want to bother doing any more work than you have.
I'll throw you a bone: Deflationary policy is idiocy. Belief that monetary policy can be neither inflationary nor deflationary is anti-empirical and wishful thinking.
And yet, somehow I still think you're not even trolling!
But if not.. Once again, I have to wonder what the hell is wrong with you people.
By the way, that wasn't an appeal to authority. It was a link to a website where you can educate yourself, without having to take my word for anything.
As for monetary policy, it shouldn't even be a thing.
Don't worry, I've spent plenty of time educating myself. Grad school was pretty good for that. It even says Economics on my diploma, heyyy.
I'm not sure what you mean by "monetary policy shouldn't even be a thing." That's like saying, "guns shouldn't even be a thing."
For starters, if you understand that value is subjective, you'll also understand that there's no way to put a number on how much you want something, or precisely how much you'd be willing to pay for it, etc.
You'll also understand that you can't base calculations on something you can't actually quantify, and have no way of accurately measuring..
So yeah, you'll understand that most of what you've been taught is just garbage-in-garbage-out.
As for monetary policy, it's essentially just "a plan for forcefully intervening in an economy", and it doesn't actually happen for the greater good - it's done to benefit the government and their buddies.
As a prime example, who gets access to newly printed thin-air-money at zero interest? Do you want him to buy real assets with "free money", and have you suffer the consequences (of the resulting decrease in your currency's purchasing power)?
Counter-example: I do it all the time. Ever heard of "revealed preference"? Sure there are weird human things like preferring A to B, B to C, and C to A, but I'm OK with a map not being the territory.
> a plan for forcefully intervening in an economy
All government choices are forceful interventions, whether a choice to act or not act.
> Counter-example: I do it all the time.
No you don't. I mean, sure you can pull numbers out of your ass and pretend to calculate something based on them.
Or you can even explicitly set out to calculate garbage results with garbage inputs, if you insist.
But you're not putting accurate numbers on how much anyone wants anything, because it's all subjective.
> All government choices are forceful interventions, whether a choice to act or not act.
Indeed. That's how ruling over subjects works. I can't parse the latter part though, but whatever.
If that's pulling something out of my ass, well, I guess you're not a fan of statistics or the scientific method? Oh, actually, I forgot that's a central tenet of the Austrian School -- science is bogus when contradicted by philosophy.
> can't parse the latter part
If a government creates money, then it must have a monetary policy. Do you think government-backed money is not "for the greater good"?
Do you think 2% is a good rate for you to be losing your savings' purchasing power? How fast would you like gangrene to spread through your body?
> 2%
The correct rate varies according to the behavior of the economy.
> gangrene
What a strange and shifting conversation.
The same applies to food. If you can afford eating in a restuarant for $20+ twice a day, you probably haven't seen any significant prise rises. But if you have trouble not spending more than $100 to feed four mouths a week, you probably a big decline in quality of your food since 2000. E.g. this requirement is hard to come by when you try to include fresh fruits.
Thus I'd say it's still an important point to consider.
When home-values inflate, it's a wealth transfer from first-time buyers to retirees that are downsizing, selling a large home for a smaller one, putting the profits into stocks and bonds. To your point, that's not a net loss, just a wealth transfer. Note, it's not a net gain either. Building homes is a gain (usually), inflating asset prices are not.
As for the rising rent, that's part of inflation ... Anyway, you seem distressed that things are "really tough to represent in the statistics" but I assure you many of your concerns have been considered.
Doesn't technological progress complicate this question even further?
When I think of more expensive products, I think of computers, smartphones, etc. Yes, the new flagship products stay expensive, but that also represents new possibilities that weren't possible a decade ago (let alone a few decades ago).
But nowadays you can get a functioning computer that lets you browse the Internet, watch videos and do your emails for the price of a Raspberry Pi (and the investment of a separate keyboard, mouse, charger, SD card and TV - but those can be gotten for cheap as well).
Similarly, a lot of things that used to be expensive are now cheap.
So basically: technological progress is shifting the "quality" spectrum itself, in some cases very quickly, in some cases barely.
(I'm not saying you're wrong, I'm just curious how economists deal with questions like this)
Sometimes economists like to create some aggregate measure of increasing consumer choice by counting the number of SKUs available in a store. Big box stores pushing out Mom & Pop made that awkward. Now Amazon makes it tougher still.
Back in grad school, I was not aware of any consensus on the topic. I haven't kept up with it since.
One technique is to focus your research on products that are largely stable in quality. For example, wine glasses. Not plastic ones, but glass or crystal. They've got a fairly large distribution in "quality" or at least in price and yet had a fairly stable range of quality since the 1950s.
So their example was that if restaurant food hasn't increased in price by much, but basic groceries have then the 'inflation' seen by different groups may be very different.
Another example may be that if average housing costs increase just a bit, but the lowest rents have increased the most then cost of living changes could be significantly different between mid and low income families.
I'm not saying either of those examples accurately reflect how things are changing in the US (as I don't have the data to hand), but they are realistic scenarios.
My whole point is that adding things and then dividing by the sum of things is not a way to represent the reality that people face. You need to argue against that if you want to make a counter point. Just repeating what the person said that I responded to (after reading what he wrote) doesn't provide anything to the discussion.
Not trying to argue semantics here, your point is completely correct but it may be confusing to say 'the EU (as if, as a whole) considers housing and inflation as separate measures'.
Only if you realize the appreciation somehow.
But all of them or missing some? In Canada there are various inflation calculators: CPI, CPIX, SHS, MEANSTD, CPIW, price-level targeting, all including or excluding various things like gasoline, transit, mortgages, some taxes, tobacco.
>all including or excluding various things like gasoline, transit, mortgages, some taxes, tobacco.
You can critique inflation measures, but there is good critique and bad critique.
Including some items can introduce unnecessary noise or make the measurement less accurate over long term. Some prices can be safely left out from the price basket because their prices are know to get into the index indirectly.
In US CPI used to overestimate inflation mostly because slow adjustments. CPI is modified to correct to this. Most developed nations use good modern CPI measures that take into account things like product substitution etc.
A cost of living statistic that averages out cost of living between say Michigan and coastal California is quite wrong in both places. It will grossly underestimate cost of living in California and overestimate it in Michigan.
I think this is one of the major problems with politics and economic policy setting at the national and global level. National and global leaders look at big aggregate statistics, which completely blinds them to the street level realities everywhere except those places that happen to coincide with the statistical median. Most places do not coincide with the statistical median. I think this largely explains the recent global populist uprising as well as the fact that global leaders were surprised by it.
Large scale macro statistics might be useful for setting things like Fed interest rates, but they're nearly worthless for addressing local problems.
The national government looks at national figures, that's not worthless. The state looks at state figures. And the municipality looks at local figures. This idea that politicians are completely blind and have no idea of street level realities, only exist at the national level, or have no data or policy instruments beyond the national level is a joke, but it seems almost like you're implying just that.
If a city looks and feels unsafe, dirty, deserted, and so on, then it probably is those things. No amount of statistics can explain away the experience of any unbiased, reasonable observer.
Park your car in the center of town somewhere. Hang out and eat a sandwich with your windows open in your car. See who walks by, hear the noises, the beeps, the sirens, the shouting kids or quiet wind.
Then you'll know what a town is really like.
I'd say plenty of people aren't fully aware of ways in which their lives get cheaper or better. That's just 'normal'. Whereas growing up and paying $2 for a coffee, and now 15 years later it's $3, is just a sign of you getting squeezed, and people are very much aware of that.
One cognitive / measurement issue here is hedonic inflation.
For example, the average new home was 1000 square feet in the 20th century and 2500 square feet today. Meanwhile, average household sizes decreased. We all got bigger houses with fewer people to share them with. We also got universal central heating, hot piped water, flush toilets.
Similarly, our computers have gotten faster. I don't need to explain the implications of moore's law to anyone here.
Suppose the average $1000 computer gets twice as fast previous year. Is that to be measured as inflation or no change? No change? Perhaps, average prices remained constant. But inflation is, among other things, a purchasing power kind of metric. 'How much computing power can I purchase with this money'. In that sense, prices halved. In short, there was deflation, on a hedonic basis.
This is something a lot of people don't realise. Inflation figures are sometimes suppressed by such improvements (which halved computing prices, even if sticker prices didn't change). Homes got more than twice as big, computers a thousand times as fast, these things can't simply be ignored by stating 'average homes and computers are more expensive', which is the reality that people experience in real life when looking at sticker prices of computers and rental properties. The reality that people often omit is that the product itself has massively improved.
Same with healthcare. Yes, costs increased. So did outcomes. Try surviving cancer today vs 50 years ago. Try living till 80 years old on average, 50 years ago, when life expectancy was sub 70.
https://ourworldindata.org/grapher/life-expectancy?tab=chart...
Wow, if you're right about the meaning of "real pay" (and I do think you're correct[1]), then The Economist is being pretty dishonest in their reporting by not explaining that important point. It makes a huge difference in how anyone interprets the story. How many people reading The Economist are actually economists? I for one assumed that The Economist was saying that people on average are massively worse off since 2000 -- which is the obvious conclusion if (nominal) pay increased 1% a year but inflation was 2-3% a year.
[1] https://en.wikipedia.org/wiki/Real_versus_nominal_value_(eco...
EDIT: I'd like to mention that "real" meaning "adjusted for inflation" is easily misinterpreted when used in normal English sentences. The article says, "In most rich countries, real pay has grown by at most 1% per year." That sounds a lot like, "In most rich countries, your actual paycheck has grown by at most 1% per year." Or, "In most rich countries, the pay you get after taxes has grown by at most 1% per year." Or other senses in which "real" has a normal English meaning rather than "adjusted for inflation".
Defining real vs nominal in this article would be like defining "variable" and "recursion" in an article about deep learning implementation at Google. Completely annoying and useless to those who subscribe.
Rather than doing what the Eonomist tends to do and assume an educated readership, they should have defined any term not daily used by someone possessed of an education past that of the 8th grade or so. This would ensure that every single reader, every single time, without any exceptions, would attain full, proper, and correct understanding. No saying "real wages" - define it as nominal wage growth less inflation. And don't just say "nominal" or "inflation", define them. Immediately and in context, so that anyone can understand.
Alternately, readers could put forth the minimal amount of effort required to Google any jargon (and "real pay" is pretty clearly jargon) they did not immediately know the definition of. I understand if some readers consider this work they should not be expected to do or otherwise an undue burden to which they refuse to rise.
In other terms, if you are spending on health care of education you are in a really bad place - prices for those services have risen at about 8x the inflation rate over the last 40 years. IF you are purchasing or building a house you will face prices 3x inflation price. However, if you are mostly buying electronics and software, the prices have actually fallen by about 50-80% over the same period.
Cost of living is a variety of factors, moreover, inflation tends to not include housing and fuel. Though there are many measure of inflation ...
[A national estimate of] housing generally is included.
I don’t agree with the root poster of this thread, though, because real wages are generally indexed to national consumption, whereas housing specifically (and to a lesser extent, food and services) are local markets, so you can have real wage growth but if you live in a high COL area, you really do have to look at real income and deflate (slightly! People often do COL deflation on gross salary, which is silly) for COL.
Fuel is not included sometimes because of it's inherent volatility, it jams the numbers up and does not give a clear picture.
Housing - I think they might include rent but not mortgages as the later reflects consumption over times other than for when inflation is calculated.
If the establishment was doing it's job people wouldn't vote anti-establishment.
Generally, that's simply not true. There are infinite different measures of inflation and it's up to the synthesizer of the inflation metric to include or exclude things, but generally housing and medical care are part of the equation.