By that logic, if you know that the prices of houses will rise, you shouldn't add them to the baskets of goods, otherwise it'll make inflation seem more than it really is.
Whether or not you know it will deflate is irrelevant. The point is these things, which almost all people buy, get cheaper. In fact I'd argue that inflation is grossly over-stated: it doesn't take into account the quality of goods. E.g think computers. Thanks to price drops of many orders of magnitude we have enormous computing resources at our disposal right in the palm of our hands that makes things possible barely imaginable 20 years ago.
Essentially the argument here is that trinkets can make up for a lack of basics.
I think that is fundamentally wrong aside from the few digital nomads that wander internet cafes with their laptops.
DVDs and cell phones and bicycles and such are very cool. No doubt about it. But they are toys. Productivity boosting toys perhaps; but housing is essential... housing isn't just productivity boosting. Without it you cannot own anything you cannot carry on your back.
I would choose a country home with a few books and a log fire over a city flat with a supercomputer. Wouldn't you?
(Hell, if we believe in the market, the fact they are more expensive is a statement that they are indeed more valuable!)
Sure. I think that using 'cost of toys' index for inflation and 'cost of living' index not at all is a ridiculous way to go about things.
If the majority of people are at income / wealth levels that mean their personal inflation rate is the cost of living index, then the general rate of inflation should be equal to that. It is literally an expression of what money is worth to the people for whom money is anything more than a metagame token.
(Compare with median vs mean income. Mean income really doesn't mean much, especially if you exclude the unemployed.)
Either that or we really need to reconsider what inflation is used for. The idea of it being used as a sort of way to determine 'real returns' is broken if most of the things people care about are left out of the index or demoted in weighting.
Even a wealthy person does not have 0% inflation in the UK. They are probably buying flats in London or similar, which are going up in price all the time. How is that not inflation? Your money buys less... inflation is (should be) a measure of that.
Toys really do not make up vast proportions of the expenditure of, well, anyone.
Any luxuries in the inflation basket immediately means that it is only relevant for the top 50% of the population.
If you are rich then inflation is just annoying. If you are poor then it is catastrophic. So it makes sense to focus on the latter.