I find it interesting how so many people think we have more of a deflation problem than an inflation problem.

First, housing and stocks have nothing to do with the CPI. The government did not take housing and stocks into account when things were rising so it is reasonable to accept the fact that they don’t when these asset prices are falling.

Think about the things you NEED and things you may not need. Medicine, energy, utilities, insurance co pays, haircuts, movies. It seems to me everything is rising, except those things you buy at the big box stores.

Now, lets talk about that fan I bought from Target. That fan cost 50.00 30 years ago and today it costs 25.00 plus it has all these neat features the fan from 30 years ago did not have.

You can bet those neat features were captured as a reduction in price via a method called “hedonics”. So according to the CPI the fan fell in price due to improvements and due to the price itself.

The CPI does not capture the fact that the fan that cost 50.00 30 years ago lasted 20 years, nor does it capture the fact that the fan for 25.00 only lasts about a year.

You can apply this example to just about all consumer items, you get crap that does not last.

The CPI does not capture “fees”, fees that did not use to exist. Fees like overweight luggage or fees for having a pillow on the air plane.

Only a fool would believe the CPI.

Hedonics allow for the following. A computer costs 1000.00 today. Next year that computer remains at 1000.00 yet the computing capacity increases by 100%. Via the wonderful world of hedonics that computer , according to the CPI, shows a 50% reduction in price.

These hedonic calculations offset the increases that we are all aware of and like magic the CPI is tame yet you wonder why it gets harder and harder to make ends meet.