money value between 2002 and 2008

[bob007]

How much inflation have we had between 2002 and 2008 ? I am trying to figure out what inflation adjusted value of a home in 2002 should be in 2008 ?

[davelj]

I think maybe two better questions are: (1) What has been the annualized increase in rents in the area you’re looking at, and (2) What has been the annualized increase in income in the area you’re looking at. I’d argue that the generic rate of inflation doesn’t get to the heart of the matter. Affordability (re: incomes) and economics (re: rents) do.

[bob007]

good point

i do not have data on rents for the particular area

[Anonymous]

This also has to take into account whether you trust the government’s CPI as a valid measure of purchasing power. You might find using data from http://www.shadowstats.com/ to be a bit more interesting. Of course, that also means that in nominal terms, housing will fall less. In real terms though, the fall would be the same.

[kev374]

Your assumption is flawed because home prices don’t track core or headline inflation but rather income inflation and incomes have declined 4% in the last 5 years, probably a big part due to Global Wage arbitrage. Headline inflation actually depresses home prices.

This makes sense, for instance say inflation is at 15% a year but your income is increasing at 2% a year. Now the price of goods is skyrocketing..groceries, oil, transporation, insurance etc. In this scenario your net affordability each year for housing is decreasing because more of your budget is being eaten up by the rising costs of goods and services.

So you can’t calculate prices of homes based on inflation. It’s income growth that is KEY. In the 90s income growth would have been approximately equal to inflation or slightly more but in the last 5-7 yrs income growth has lagged inflation. The difference has been picked up by credit spending but that is no more so we’re in for some interesting times ahead.

To give you an example, in my line of work, which is IT consulting, they are paying the same hourly rates they were paying in 2000. In some cases rates have gone down due to the huge influx of cheap H1B labor and especially L1 labor which bypasses the caps and are paid peanuts.

[kev374]

Your assumption is flawed because home prices don’t track core or headline inflation but rather income inflation and incomes have declined 4% in the last 5 years, probably a big part due to Global Wage arbitrage. Headline inflation actually depresses home prices.

This makes sense, for instance say inflation is at 15% a year but your income is increasing at 2% a year. Now the price of goods is skyrocketing..groceries, oil, transporation, insurance etc. In this scenario your net affordability each year for housing is decreasing because more of your budget is being eaten up by the rising costs of goods and services.

So you can’t calculate prices of homes based on inflation. It’s income growth that is KEY. In the 90s income growth would have been approximately equal to inflation or slightly more but in the last 5-7 yrs income growth has lagged inflation. The difference has been picked up by credit spending but that is no more so we’re in for some interesting times ahead.

To give you an example, in my line of work, which is IT consulting, they are paying the same hourly rates they were paying in 2000. In some cases rates have gone down due to the huge influx of cheap H1B labor and especially L1 labor which bypasses the caps and are paid peanuts.

[kev374]

Your assumption is flawed because home prices don’t track core or headline inflation but rather income inflation and incomes have declined 4% in the last 5 years, probably a big part due to Global Wage arbitrage. Headline inflation actually depresses home prices.

This makes sense, for instance say inflation is at 15% a year but your income is increasing at 2% a year. Now the price of goods is skyrocketing..groceries, oil, transporation, insurance etc. In this scenario your net affordability each year for housing is decreasing because more of your budget is being eaten up by the rising costs of goods and services.

So you can’t calculate prices of homes based on inflation. It’s income growth that is KEY. In the 90s income growth would have been approximately equal to inflation or slightly more but in the last 5-7 yrs income growth has lagged inflation. The difference has been picked up by credit spending but that is no more so we’re in for some interesting times ahead.

To give you an example, in my line of work, which is IT consulting, they are paying the same hourly rates they were paying in 2000. In some cases rates have gone down due to the huge influx of cheap H1B labor and especially L1 labor which bypasses the caps and are paid peanuts.

[kev374]

Your assumption is flawed because home prices don’t track core or headline inflation but rather income inflation and incomes have declined 4% in the last 5 years, probably a big part due to Global Wage arbitrage. Headline inflation actually depresses home prices.

This makes sense, for instance say inflation is at 15% a year but your income is increasing at 2% a year. Now the price of goods is skyrocketing..groceries, oil, transporation, insurance etc. In this scenario your net affordability each year for housing is decreasing because more of your budget is being eaten up by the rising costs of goods and services.

So you can’t calculate prices of homes based on inflation. It’s income growth that is KEY. In the 90s income growth would have been approximately equal to inflation or slightly more but in the last 5-7 yrs income growth has lagged inflation. The difference has been picked up by credit spending but that is no more so we’re in for some interesting times ahead.

To give you an example, in my line of work, which is IT consulting, they are paying the same hourly rates they were paying in 2000. In some cases rates have gone down due to the huge influx of cheap H1B labor and especially L1 labor which bypasses the caps and are paid peanuts.

[kev374]

Your assumption is flawed because home prices don’t track core or headline inflation but rather income inflation and incomes have declined 4% in the last 5 years, probably a big part due to Global Wage arbitrage. Headline inflation actually depresses home prices.

This makes sense, for instance say inflation is at 15% a year but your income is increasing at 2% a year. Now the price of goods is skyrocketing..groceries, oil, transporation, insurance etc. In this scenario your net affordability each year for housing is decreasing because more of your budget is being eaten up by the rising costs of goods and services.

So you can’t calculate prices of homes based on inflation. It’s income growth that is KEY. In the 90s income growth would have been approximately equal to inflation or slightly more but in the last 5-7 yrs income growth has lagged inflation. The difference has been picked up by credit spending but that is no more so we’re in for some interesting times ahead.

To give you an example, in my line of work, which is IT consulting, they are paying the same hourly rates they were paying in 2000. In some cases rates have gone down due to the huge influx of cheap H1B labor and especially L1 labor which bypasses the caps and are paid peanuts.

[4plexowner]

Andy – do you participate in a trading chat room at Rick’s Picks?

[hipmatt]

The inflation that we are seeing is mainly in commodities that are in limited supply. Food and energy, plus other utilities, health care, and education. Homes are not in this category. Trying to talk yourself or someone else into buying a home at todays prices due to inflation doesn’t work.

In 2002 (or earlier) there were much less homes per capita in the usa than in 2008. The increase in supply alone over the years is enough to cause for a dramatic decline in home values. The other factors I won’t get into. Rents are a much better indicator of inflation than the volatile and highly inflated past and current home values.

[hipmatt]

The inflation that we are seeing is mainly in commodities that are in limited supply. Food and energy, plus other utilities, health care, and education. Homes are not in this category. Trying to talk yourself or someone else into buying a home at todays prices due to inflation doesn’t work.

In 2002 (or earlier) there were much less homes per capita in the usa than in 2008. The increase in supply alone over the years is enough to cause for a dramatic decline in home values. The other factors I won’t get into. Rents are a much better indicator of inflation than the volatile and highly inflated past and current home values.

[hipmatt]

The inflation that we are seeing is mainly in commodities that are in limited supply. Food and energy, plus other utilities, health care, and education. Homes are not in this category. Trying to talk yourself or someone else into buying a home at todays prices due to inflation doesn’t work.

In 2002 (or earlier) there were much less homes per capita in the usa than in 2008. The increase in supply alone over the years is enough to cause for a dramatic decline in home values. The other factors I won’t get into. Rents are a much better indicator of inflation than the volatile and highly inflated past and current home values.

[hipmatt]

The inflation that we are seeing is mainly in commodities that are in limited supply. Food and energy, plus other utilities, health care, and education. Homes are not in this category. Trying to talk yourself or someone else into buying a home at todays prices due to inflation doesn’t work.

In 2002 (or earlier) there were much less homes per capita in the usa than in 2008. The increase in supply alone over the years is enough to cause for a dramatic decline in home values. The other factors I won’t get into. Rents are a much better indicator of inflation than the volatile and highly inflated past and current home values.

[hipmatt]

The inflation that we are seeing is mainly in commodities that are in limited supply. Food and energy, plus other utilities, health care, and education. Homes are not in this category. Trying to talk yourself or someone else into buying a home at todays prices due to inflation doesn’t work.

In 2002 (or earlier) there were much less homes per capita in the usa than in 2008. The increase in supply alone over the years is enough to cause for a dramatic decline in home values. The other factors I won’t get into. Rents are a much better indicator of inflation than the volatile and highly inflated past and current home values.

[Anonymous]

Andy – do you participate in a trading chat room at Rick’s Picks?

Nope, not I. I usually just lurk on must blogs I frequent. This is one of the few that I post on.

[drunkle]

how many different aspects of government are keyed to inflation? wages, budgeting, taxation, trade policies, monetary policies, entitlements…

if your entitlements are going up due to inflation, you’re ok with that. but how would you feel if your entitlements were going down due to decreased inflation (or deflation)?

so, you save money by not increasing budgets according to real inflation and you save political capital by not having to either cut budgets or increase taxes during deflationary periods. badda bing badda boom, kill two birds with one stone.

[drunkle]

how many different aspects of government are keyed to inflation? wages, budgeting, taxation, trade policies, monetary policies, entitlements…

if your entitlements are going up due to inflation, you’re ok with that. but how would you feel if your entitlements were going down due to decreased inflation (or deflation)?

so, you save money by not increasing budgets according to real inflation and you save political capital by not having to either cut budgets or increase taxes during deflationary periods. badda bing badda boom, kill two birds with one stone.

[drunkle]

how many different aspects of government are keyed to inflation? wages, budgeting, taxation, trade policies, monetary policies, entitlements…

if your entitlements are going up due to inflation, you’re ok with that. but how would you feel if your entitlements were going down due to decreased inflation (or deflation)?

so, you save money by not increasing budgets according to real inflation and you save political capital by not having to either cut budgets or increase taxes during deflationary periods. badda bing badda boom, kill two birds with one stone.

[drunkle]

how many different aspects of government are keyed to inflation? wages, budgeting, taxation, trade policies, monetary policies, entitlements…

if your entitlements are going up due to inflation, you’re ok with that. but how would you feel if your entitlements were going down due to decreased inflation (or deflation)?

so, you save money by not increasing budgets according to real inflation and you save political capital by not having to either cut budgets or increase taxes during deflationary periods. badda bing badda boom, kill two birds with one stone.

[drunkle]

how many different aspects of government are keyed to inflation? wages, budgeting, taxation, trade policies, monetary policies, entitlements…

if your entitlements are going up due to inflation, you’re ok with that. but how would you feel if your entitlements were going down due to decreased inflation (or deflation)?

so, you save money by not increasing budgets according to real inflation and you save political capital by not having to either cut budgets or increase taxes during deflationary periods. badda bing badda boom, kill two birds with one stone.

[Anonymous]

Andy – do you participate in a trading chat room at Rick’s Picks?

Nope, not I. I usually just lurk on must blogs I frequent. This is one of the few that I post on.

[Anonymous]

Andy – do you participate in a trading chat room at Rick’s Picks?

Nope, not I. I usually just lurk on must blogs I frequent. This is one of the few that I post on.

[Anonymous]

Andy – do you participate in a trading chat room at Rick’s Picks?

Nope, not I. I usually just lurk on must blogs I frequent. This is one of the few that I post on.

[Anonymous]

Andy – do you participate in a trading chat room at Rick’s Picks?

Nope, not I. I usually just lurk on must blogs I frequent. This is one of the few that I post on.

[4plexowner]

Andy – do you participate in a trading chat room at Rick’s Picks?

[4plexowner]

Andy – do you participate in a trading chat room at Rick’s Picks?

[4plexowner]

Andy – do you participate in a trading chat room at Rick’s Picks?

[4plexowner]

Andy – do you participate in a trading chat room at Rick’s Picks?

[Anonymous]

This also has to take into account whether you trust the government’s CPI as a valid measure of purchasing power. You might find using data from http://www.shadowstats.com/ to be a bit more interesting. Of course, that also means that in nominal terms, housing will fall less. In real terms though, the fall would be the same.

[Anonymous]

This also has to take into account whether you trust the government’s CPI as a valid measure of purchasing power. You might find using data from http://www.shadowstats.com/ to be a bit more interesting. Of course, that also means that in nominal terms, housing will fall less. In real terms though, the fall would be the same.

[Anonymous]

This also has to take into account whether you trust the government’s CPI as a valid measure of purchasing power. You might find using data from http://www.shadowstats.com/ to be a bit more interesting. Of course, that also means that in nominal terms, housing will fall less. In real terms though, the fall would be the same.

[Anonymous]

This also has to take into account whether you trust the government’s CPI as a valid measure of purchasing power. You might find using data from http://www.shadowstats.com/ to be a bit more interesting. Of course, that also means that in nominal terms, housing will fall less. In real terms though, the fall would be the same.

[bob007]

good point

i do not have data on rents for the particular area

[bob007]

good point

i do not have data on rents for the particular area

[bob007]

good point

i do not have data on rents for the particular area

[bob007]

good point

i do not have data on rents for the particular area

[davelj]

I think maybe two better questions are: (1) What has been the annualized increase in rents in the area you’re looking at, and (2) What has been the annualized increase in income in the area you’re looking at. I’d argue that the generic rate of inflation doesn’t get to the heart of the matter. Affordability (re: incomes) and economics (re: rents) do.

[davelj]

I think maybe two better questions are: (1) What has been the annualized increase in rents in the area you’re looking at, and (2) What has been the annualized increase in income in the area you’re looking at. I’d argue that the generic rate of inflation doesn’t get to the heart of the matter. Affordability (re: incomes) and economics (re: rents) do.

[davelj]

I think maybe two better questions are: (1) What has been the annualized increase in rents in the area you’re looking at, and (2) What has been the annualized increase in income in the area you’re looking at. I’d argue that the generic rate of inflation doesn’t get to the heart of the matter. Affordability (re: incomes) and economics (re: rents) do.

[davelj]

I think maybe two better questions are: (1) What has been the annualized increase in rents in the area you’re looking at, and (2) What has been the annualized increase in income in the area you’re looking at. I’d argue that the generic rate of inflation doesn’t get to the heart of the matter. Affordability (re: incomes) and economics (re: rents) do.

[robson]

Your answer is found here http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=dropmap&series_id=CUURA424SA0,CUUSA424SA0
2002 the San Diego CPI was 198. Now it’s at least 234. This means a house worth $300,000 in 2002 (the April Median) should be worth 300,000*(234/198) or $354,500. The latest median per dataquick was 430,000 in December.

[robson]

Your answer is found here http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=dropmap&series_id=CUURA424SA0,CUUSA424SA0
2002 the San Diego CPI was 198. Now it’s at least 234. This means a house worth $300,000 in 2002 (the April Median) should be worth 300,000*(234/198) or $354,500. The latest median per dataquick was 430,000 in December.

[robson]

Your answer is found here http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=dropmap&series_id=CUURA424SA0,CUUSA424SA0
2002 the San Diego CPI was 198. Now it’s at least 234. This means a house worth $300,000 in 2002 (the April Median) should be worth 300,000*(234/198) or $354,500. The latest median per dataquick was 430,000 in December.

[robson]

Your answer is found here http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=dropmap&series_id=CUURA424SA0,CUUSA424SA0
2002 the San Diego CPI was 198. Now it’s at least 234. This means a house worth $300,000 in 2002 (the April Median) should be worth 300,000*(234/198) or $354,500. The latest median per dataquick was 430,000 in December.

[robson]

Your answer is found here http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=dropmap&series_id=CUURA424SA0,CUUSA424SA0
2002 the San Diego CPI was 198. Now it’s at least 234. This means a house worth $300,000 in 2002 (the April Median) should be worth 300,000*(234/198) or $354,500. The latest median per dataquick was 430,000 in December.

[DWCAP]

Ok, so I have a question. I thought I would try to understand this change in the way we calculate headline inflation. I understand that it was changed in the 90’s and has consistantly reported a lower level of inflation than the older model did. My question is why. Not conspiricy theory or “cause the gov is trying to inflate its way outa the debt”. They had to have better, more financially sound reasons than that, or no one would still be buying securities. So my question is what are these reasons for change? Is this a better gage of real inflation, more timely, less prone to wide swings…….? I understand core inflation, I understand wage inflation. I dont need definitions or anything like that. I took Econ 101. What I am wondering is more of the WHY.

[DWCAP]

Ok, so I have a question. I thought I would try to understand this change in the way we calculate headline inflation. I understand that it was changed in the 90’s and has consistantly reported a lower level of inflation than the older model did. My question is why. Not conspiricy theory or “cause the gov is trying to inflate its way outa the debt”. They had to have better, more financially sound reasons than that, or no one would still be buying securities. So my question is what are these reasons for change? Is this a better gage of real inflation, more timely, less prone to wide swings…….? I understand core inflation, I understand wage inflation. I dont need definitions or anything like that. I took Econ 101. What I am wondering is more of the WHY.

[DWCAP]

Ok, so I have a question. I thought I would try to understand this change in the way we calculate headline inflation. I understand that it was changed in the 90’s and has consistantly reported a lower level of inflation than the older model did. My question is why. Not conspiricy theory or “cause the gov is trying to inflate its way outa the debt”. They had to have better, more financially sound reasons than that, or no one would still be buying securities. So my question is what are these reasons for change? Is this a better gage of real inflation, more timely, less prone to wide swings…….? I understand core inflation, I understand wage inflation. I dont need definitions or anything like that. I took Econ 101. What I am wondering is more of the WHY.

[DWCAP]

Ok, so I have a question. I thought I would try to understand this change in the way we calculate headline inflation. I understand that it was changed in the 90’s and has consistantly reported a lower level of inflation than the older model did. My question is why. Not conspiricy theory or “cause the gov is trying to inflate its way outa the debt”. They had to have better, more financially sound reasons than that, or no one would still be buying securities. So my question is what are these reasons for change? Is this a better gage of real inflation, more timely, less prone to wide swings…….? I understand core inflation, I understand wage inflation. I dont need definitions or anything like that. I took Econ 101. What I am wondering is more of the WHY.

[DWCAP]

Ok, so I have a question. I thought I would try to understand this change in the way we calculate headline inflation. I understand that it was changed in the 90’s and has consistantly reported a lower level of inflation than the older model did. My question is why. Not conspiricy theory or “cause the gov is trying to inflate its way outa the debt”. They had to have better, more financially sound reasons than that, or no one would still be buying securities. So my question is what are these reasons for change? Is this a better gage of real inflation, more timely, less prone to wide swings…….? I understand core inflation, I understand wage inflation. I dont need definitions or anything like that. I took Econ 101. What I am wondering is more of the WHY.

[alarmclock]

kev374 — IT in 2000 was a bubble, so wage stagnation in IT is probably does not support the argument very well. Although my rates are basically unchanged from 2000 as well.

[Fearful]

DWCAP are you asking about “core” inflation, which excludes volatile food and energy prices? If so, the rationale for excluding those items was to provide a more reasonable measure of inflation, or the comparison of the money supply to economic productivity. But when food and energy prices consistently move in one direction, they cannot be ignored forever.

[Fearful]

DWCAP are you asking about “core” inflation, which excludes volatile food and energy prices? If so, the rationale for excluding those items was to provide a more reasonable measure of inflation, or the comparison of the money supply to economic productivity. But when food and energy prices consistently move in one direction, they cannot be ignored forever.

[Fearful]

DWCAP are you asking about “core” inflation, which excludes volatile food and energy prices? If so, the rationale for excluding those items was to provide a more reasonable measure of inflation, or the comparison of the money supply to economic productivity. But when food and energy prices consistently move in one direction, they cannot be ignored forever.

[Fearful]

DWCAP are you asking about “core” inflation, which excludes volatile food and energy prices? If so, the rationale for excluding those items was to provide a more reasonable measure of inflation, or the comparison of the money supply to economic productivity. But when food and energy prices consistently move in one direction, they cannot be ignored forever.

[Fearful]

DWCAP are you asking about “core” inflation, which excludes volatile food and energy prices? If so, the rationale for excluding those items was to provide a more reasonable measure of inflation, or the comparison of the money supply to economic productivity. But when food and energy prices consistently move in one direction, they cannot be ignored forever.

[alarmclock]

kev374 — IT in 2000 was a bubble, so wage stagnation in IT is probably does not support the argument very well. Although my rates are basically unchanged from 2000 as well.

[alarmclock]

kev374 — IT in 2000 was a bubble, so wage stagnation in IT is probably does not support the argument very well. Although my rates are basically unchanged from 2000 as well.

[alarmclock]

kev374 — IT in 2000 was a bubble, so wage stagnation in IT is probably does not support the argument very well. Although my rates are basically unchanged from 2000 as well.

[alarmclock]

kev374 — IT in 2000 was a bubble, so wage stagnation in IT is probably does not support the argument very well. Although my rates are basically unchanged from 2000 as well.

[DWCAP]

Fearful,

No I know core inflation. I understand that. Basically I am asking why they made the change. Look at some point someone had to be sitting at their desk, or bored sitting in traffic, or sitting where ever they get their thinking done best and that person had to think, “hey, we can track inflation better than we have been.” So they put on their thinking caps, make some changes and present it to whomever makes the decision to make the change to the new system. (stupid short hand for how changes are made i know, but you get the idea).
Ok, in the meeting when they present this new idea, they had to give a REASON or two for the change. What I want to know is what are the reasons cited to make the change in the way we calculate inflation. Everyone on this board always grips about how inflation is understated and all that. But their has to be some benifits of this other than hiding unwanted inflation. What are those benifits?

[no_such_reality]

Give it time, you’ll see 1989 prices again.

No, that’s not a typo. 1989.

I’ve been snooping through sales records and realized today that 1989 prices in the OC are roughly equal to the 1999/2000 prices in the OC.

That’s nominal, not real. Nominal.

Does that put a real estate cycle in perspective for people?

[no_such_reality]

Give it time, you’ll see 1989 prices again.

No, that’s not a typo. 1989.

I’ve been snooping through sales records and realized today that 1989 prices in the OC are roughly equal to the 1999/2000 prices in the OC.

That’s nominal, not real. Nominal.

Does that put a real estate cycle in perspective for people?

[no_such_reality]

Give it time, you’ll see 1989 prices again.

No, that’s not a typo. 1989.

I’ve been snooping through sales records and realized today that 1989 prices in the OC are roughly equal to the 1999/2000 prices in the OC.

That’s nominal, not real. Nominal.

Does that put a real estate cycle in perspective for people?

[no_such_reality]

Give it time, you’ll see 1989 prices again.

No, that’s not a typo. 1989.

I’ve been snooping through sales records and realized today that 1989 prices in the OC are roughly equal to the 1999/2000 prices in the OC.

That’s nominal, not real. Nominal.

Does that put a real estate cycle in perspective for people?

[no_such_reality]

Give it time, you’ll see 1989 prices again.

No, that’s not a typo. 1989.

I’ve been snooping through sales records and realized today that 1989 prices in the OC are roughly equal to the 1999/2000 prices in the OC.

That’s nominal, not real. Nominal.

Does that put a real estate cycle in perspective for people?

[Fearful]

Regarding core versus headline inflation, again, I think the rationale was to remove the volatility that food and energy prices presented.

The theory is that expectations of inflation tend to be self reinforcing – that is, expecting inflation leads people to spend earlier, increasing the money velocity, which increases the money supply, creating inflation. Therefore, if people are not expecting “core” spending categories to increase in price, they will not create inflation in those categories. Therefore, since the “core” inflation was generally more stable, it reduced people’s inflation expectations and thus created less inflation.

From a simple perspective, however, excluding a category of spending doesn’t make sense, because excluding a category of spending, even a volatile one, misstates the inflation of the remainder of the categories – if a certain money supply is being increasingly directed toward rising energy costs, then the prices of the remainder of the categories ought to go down. More money spent on gas means less money available for household furnishings, so higher gas prices ought to lead to lower household furnishings prices.

Note that expectations of deflation are also self perpetuating. Expecting prices to fall discourages spending, reduces money velocity, and so shrinks the money supply.

[robson]

Good analysis. The theory of self reinforcing inflation expectations makes sense. However, many economic theories don’t work well when put into reality due to faulty assumptions. Is there any study that has shown that this reporting method slows inflation after including food and energy?

[Fearful]

I don’t know. I didn’t make up the theory; I think I read it in something published by a FRB governor.

It’s a little eerie to think just how little control the central bank has over the money supply. Even if the bank was solely responsible for money creation, e.g. by printing only currency, they could do nothing about people taking that currency and stuffing it under mattresses – effectively taking it out of the supply.

[Fearful]

I don’t know. I didn’t make up the theory; I think I read it in something published by a FRB governor.

It’s a little eerie to think just how little control the central bank has over the money supply. Even if the bank was solely responsible for money creation, e.g. by printing only currency, they could do nothing about people taking that currency and stuffing it under mattresses – effectively taking it out of the supply.

[Fearful]

I don’t know. I didn’t make up the theory; I think I read it in something published by a FRB governor.

It’s a little eerie to think just how little control the central bank has over the money supply. Even if the bank was solely responsible for money creation, e.g. by printing only currency, they could do nothing about people taking that currency and stuffing it under mattresses – effectively taking it out of the supply.

[Fearful]

I don’t know. I didn’t make up the theory; I think I read it in something published by a FRB governor.

It’s a little eerie to think just how little control the central bank has over the money supply. Even if the bank was solely responsible for money creation, e.g. by printing only currency, they could do nothing about people taking that currency and stuffing it under mattresses – effectively taking it out of the supply.

[Fearful]

I don’t know. I didn’t make up the theory; I think I read it in something published by a FRB governor.

It’s a little eerie to think just how little control the central bank has over the money supply. Even if the bank was solely responsible for money creation, e.g. by printing only currency, they could do nothing about people taking that currency and stuffing it under mattresses – effectively taking it out of the supply.

[robson]

Good analysis. The theory of self reinforcing inflation expectations makes sense. However, many economic theories don’t work well when put into reality due to faulty assumptions. Is there any study that has shown that this reporting method slows inflation after including food and energy?

[robson]

Good analysis. The theory of self reinforcing inflation expectations makes sense. However, many economic theories don’t work well when put into reality due to faulty assumptions. Is there any study that has shown that this reporting method slows inflation after including food and energy?

[robson]

Good analysis. The theory of self reinforcing inflation expectations makes sense. However, many economic theories don’t work well when put into reality due to faulty assumptions. Is there any study that has shown that this reporting method slows inflation after including food and energy?

[robson]

Good analysis. The theory of self reinforcing inflation expectations makes sense. However, many economic theories don’t work well when put into reality due to faulty assumptions. Is there any study that has shown that this reporting method slows inflation after including food and energy?

[Fearful]

Regarding core versus headline inflation, again, I think the rationale was to remove the volatility that food and energy prices presented.

The theory is that expectations of inflation tend to be self reinforcing – that is, expecting inflation leads people to spend earlier, increasing the money velocity, which increases the money supply, creating inflation. Therefore, if people are not expecting “core” spending categories to increase in price, they will not create inflation in those categories. Therefore, since the “core” inflation was generally more stable, it reduced people’s inflation expectations and thus created less inflation.

From a simple perspective, however, excluding a category of spending doesn’t make sense, because excluding a category of spending, even a volatile one, misstates the inflation of the remainder of the categories – if a certain money supply is being increasingly directed toward rising energy costs, then the prices of the remainder of the categories ought to go down. More money spent on gas means less money available for household furnishings, so higher gas prices ought to lead to lower household furnishings prices.

Note that expectations of deflation are also self perpetuating. Expecting prices to fall discourages spending, reduces money velocity, and so shrinks the money supply.

[Fearful]

Regarding core versus headline inflation, again, I think the rationale was to remove the volatility that food and energy prices presented.

The theory is that expectations of inflation tend to be self reinforcing – that is, expecting inflation leads people to spend earlier, increasing the money velocity, which increases the money supply, creating inflation. Therefore, if people are not expecting “core” spending categories to increase in price, they will not create inflation in those categories. Therefore, since the “core” inflation was generally more stable, it reduced people’s inflation expectations and thus created less inflation.

From a simple perspective, however, excluding a category of spending doesn’t make sense, because excluding a category of spending, even a volatile one, misstates the inflation of the remainder of the categories – if a certain money supply is being increasingly directed toward rising energy costs, then the prices of the remainder of the categories ought to go down. More money spent on gas means less money available for household furnishings, so higher gas prices ought to lead to lower household furnishings prices.

Note that expectations of deflation are also self perpetuating. Expecting prices to fall discourages spending, reduces money velocity, and so shrinks the money supply.

[Fearful]

Regarding core versus headline inflation, again, I think the rationale was to remove the volatility that food and energy prices presented.

The theory is that expectations of inflation tend to be self reinforcing – that is, expecting inflation leads people to spend earlier, increasing the money velocity, which increases the money supply, creating inflation. Therefore, if people are not expecting “core” spending categories to increase in price, they will not create inflation in those categories. Therefore, since the “core” inflation was generally more stable, it reduced people’s inflation expectations and thus created less inflation.

From a simple perspective, however, excluding a category of spending doesn’t make sense, because excluding a category of spending, even a volatile one, misstates the inflation of the remainder of the categories – if a certain money supply is being increasingly directed toward rising energy costs, then the prices of the remainder of the categories ought to go down. More money spent on gas means less money available for household furnishings, so higher gas prices ought to lead to lower household furnishings prices.

Note that expectations of deflation are also self perpetuating. Expecting prices to fall discourages spending, reduces money velocity, and so shrinks the money supply.

[Fearful]

Regarding core versus headline inflation, again, I think the rationale was to remove the volatility that food and energy prices presented.

The theory is that expectations of inflation tend to be self reinforcing – that is, expecting inflation leads people to spend earlier, increasing the money velocity, which increases the money supply, creating inflation. Therefore, if people are not expecting “core” spending categories to increase in price, they will not create inflation in those categories. Therefore, since the “core” inflation was generally more stable, it reduced people’s inflation expectations and thus created less inflation.

From a simple perspective, however, excluding a category of spending doesn’t make sense, because excluding a category of spending, even a volatile one, misstates the inflation of the remainder of the categories – if a certain money supply is being increasingly directed toward rising energy costs, then the prices of the remainder of the categories ought to go down. More money spent on gas means less money available for household furnishings, so higher gas prices ought to lead to lower household furnishings prices.

Note that expectations of deflation are also self perpetuating. Expecting prices to fall discourages spending, reduces money velocity, and so shrinks the money supply.

[DWCAP]

Fearful,

No I know core inflation. I understand that. Basically I am asking why they made the change. Look at some point someone had to be sitting at their desk, or bored sitting in traffic, or sitting where ever they get their thinking done best and that person had to think, “hey, we can track inflation better than we have been.” So they put on their thinking caps, make some changes and present it to whomever makes the decision to make the change to the new system. (stupid short hand for how changes are made i know, but you get the idea).
Ok, in the meeting when they present this new idea, they had to give a REASON or two for the change. What I want to know is what are the reasons cited to make the change in the way we calculate inflation. Everyone on this board always grips about how inflation is understated and all that. But their has to be some benifits of this other than hiding unwanted inflation. What are those benifits?

[DWCAP]

Fearful,

No I know core inflation. I understand that. Basically I am asking why they made the change. Look at some point someone had to be sitting at their desk, or bored sitting in traffic, or sitting where ever they get their thinking done best and that person had to think, “hey, we can track inflation better than we have been.” So they put on their thinking caps, make some changes and present it to whomever makes the decision to make the change to the new system. (stupid short hand for how changes are made i know, but you get the idea).
Ok, in the meeting when they present this new idea, they had to give a REASON or two for the change. What I want to know is what are the reasons cited to make the change in the way we calculate inflation. Everyone on this board always grips about how inflation is understated and all that. But their has to be some benifits of this other than hiding unwanted inflation. What are those benifits?

[DWCAP]

Fearful,

No I know core inflation. I understand that. Basically I am asking why they made the change. Look at some point someone had to be sitting at their desk, or bored sitting in traffic, or sitting where ever they get their thinking done best and that person had to think, “hey, we can track inflation better than we have been.” So they put on their thinking caps, make some changes and present it to whomever makes the decision to make the change to the new system. (stupid short hand for how changes are made i know, but you get the idea).
Ok, in the meeting when they present this new idea, they had to give a REASON or two for the change. What I want to know is what are the reasons cited to make the change in the way we calculate inflation. Everyone on this board always grips about how inflation is understated and all that. But their has to be some benifits of this other than hiding unwanted inflation. What are those benifits?

[DWCAP]

Fearful,

No I know core inflation. I understand that. Basically I am asking why they made the change. Look at some point someone had to be sitting at their desk, or bored sitting in traffic, or sitting where ever they get their thinking done best and that person had to think, “hey, we can track inflation better than we have been.” So they put on their thinking caps, make some changes and present it to whomever makes the decision to make the change to the new system. (stupid short hand for how changes are made i know, but you get the idea).
Ok, in the meeting when they present this new idea, they had to give a REASON or two for the change. What I want to know is what are the reasons cited to make the change in the way we calculate inflation. Everyone on this board always grips about how inflation is understated and all that. But their has to be some benifits of this other than hiding unwanted inflation. What are those benifits?

[Author]

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