> How would one game the CPI? A price index is just an average of the prices of a bunch of different goods.
- They have changed what goods are thrown in the basket and in what proportion repeatedly.
- They have made adjustments, or when they haven't they arguably should, for variation in quality of goods since for example any TV you buy now is higher quality than anything available in 1990. You don't have the option of buying the previous quality anymore though.
- It's a bit murky how to account for substitutions over time such as people buying Impossible burgers instead of beef.
Many of the adjustments they consider are completely reasonable but involve subjective and game-able choices which makes the measure hard to trust at face value.
One more problem with CPI is that the way it works is they survey a bunch of median households about what they bought and how much of it they bought, and they don't adjust for how much money they saved. So in economic times when the median household was able to save some money, that resulted in a different CPI than when households spend their entire paychecks (where they have to adjust their spending preferences/how they allocate according to the maximum they could spend -- all their money).
For example, if grocery prices go up 30% on average, but only 10% on some staple like beans, I might buy more beans than I used to, putting more weight on the item whose price increased less, but not out of preference for that item. That increases the BLS weight for beans and decreases it for prices that are rising more quickly. Back in 1980 I might have bought different items and also saved some money each month. Now that saving portion of my "expenditures" is gone, but that also isn't accounted for by the CPI.
There's a reason that charts of real wages over time are largely flat or even increasing [0], despite that being inconsistent with the economic reality, and it's this BLS metric to blame.
No, I've described financial necessity, because I can no longer afford the item I prefer (which was recorded as my preference in a prior BLS survey, before the prices rose). But sure, if you think pedantry benefits the discussion...
Since the prices changed, you now prefer beans. The CPI isn't tracking the price of beans, it's tracking the overall price of food. Prices change all of the time, and consumer behavior changes because of it. If you choose to buy beans because it's more affordable, then the price of food should reflect what you're buying because that is a number you can back up. If you track what you want to buy then it's just make believe.
> The CPI isn't tracking the price of beans, it's tracking the overall price of food
First of all, this is incorrect. They do track per-item [0].
The point that I think you are missing is that, to me, beans are of a lower quality than what I used to purchase. However, hedonic adjustments don't go the other way to account for this.
You see, because I do not save any money, and I allocate the same proportion of my median salary to spend on food as I did before (because I have no additional money to put in), my contribution to inflation is based on the inflation of items that I can afford, not of what I used to be able to afford. That's just how they calculate it, resulting in a lagging indicator that misses some inflation altogether when combined with increasing wealth inequality. In an environment where the median person has no disposable income, a portion of inflation is always hidden by their changing consuming habits, where those changes are driven by the inflation itself and not by any change in quality or qualitative preference.
They track each item and weight them. The point isn't to track each item, the point is to track the general costs of consumer goods over time. Over time, what they track and how they weight them changes. So no, the point of the CPI isn't to track the price of a specific item.
I fully understand you feel like beans are lower quality, but that doesn't matter because it is not possible to track what you might have bought, so we track what you did buy. You may buy beans because bean companies go viral with their marketing, or because your local store is out of potatoes, or because you found a really good looking chili recipe you want to try. CPI doesn't try to explain why you bought beans, or didn't buy potatoes.
> So no, the point of the CPI isn't to track the price of a specific item.
Strawman. No one ever claimed that.
I'm not sure why you're continuing to argue here.
> but that doesn't matter because it is not possible to track what you might have bought
I can think of several ways of improving on the current system, two of which can be easily derived if you understand my previous post.
Spoiler: track the inflation of goods weighted by quantities purchased 1-2 years prior. And incorporate savings as a significant category such that the category CPI_savings = -(net_savings_this_month - net_savings_X_months_ago) / ((income_this_month + income_X_months_ago)/2). Still imperfect if most of the people answering the survey have no savings, but at least it would have captured the undocumented inflation from the 1980s-2010s that was hidden by decreasing savings.
I never claimed you can't improve CPI, or that it's even an accurate way to view changes in prices over time. My original comment was that when you choose to buy beans over another food, you are expressly showing you prefer to buy beans.
- They have changed what goods are thrown in the basket and in what proportion repeatedly.
- They have made adjustments, or when they haven't they arguably should, for variation in quality of goods since for example any TV you buy now is higher quality than anything available in 1990. You don't have the option of buying the previous quality anymore though.
- It's a bit murky how to account for substitutions over time such as people buying Impossible burgers instead of beef.
Many of the adjustments they consider are completely reasonable but involve subjective and game-able choices which makes the measure hard to trust at face value.