November 21, 2007
Tomorrow's Inflation Basket
We've been having a fascinating [we do know how to have a good time!] discussion of monetary policy and inflation around here.
The American Magazine links to an American Farm Bureau report that details the cost of a traditional Thanksgiving dinner for ten. It's up to 42 bucks this year, but it's growing at a rate lower than inflation:
The AFBF survey was first conducted in 1986. This year’s average cost of $42.26 is equivalent to $20.46 in inflation-adjusted dollars. The real dollar cost of the Thanksgiving dinner has declined 9 percent in the last 20 years, according to Sartwelle. While Farm Bureau does not make any statistical claims about the data, it is a gauge of price trends around the nation.
I'm constantly told that the CPI and PCE are underestimating inflation and that core CPI is meaningless because food, energy, education and health care costs are making real inflation worse.
I think this study puts a fork in the food commodities claim [little holiday humor there -- put a fork in it...]. The health care claim is specious because a richer society chooses to spend more on health care, that is not inflationary. Education is over-regulated and subsidized by Government, surely the price data is suspect as best. Energy is over-regulated, cartelized, and subject to demand pressures in an unprecedented global boom.
Give thanks, inflation is under control! Pass the yams, please.
Economics and Markets
Posted by jk at November 21, 2007 12:46 PM
I've never referred to either calculation of CPI to justify my belief about inflation, since either one is still a basket.
The prices of basic flash memory MP3 players keeps dropping. The 8-gig Sandisk e280 costs as much as what I paid 15 months ago for a 2-gig version. The 2-gig version now costs half of what it did. Does that mean inflation is dropping, that the money supply has been deflated to half? Hardly. So why do we think the price of a Thanksgiving dinner necessarily indicates inflation, when it's too small a subset of goods and services to be a good measure? It also doesn't take into account that grocery stores are willing to make very small profit margins, if not go loss-leader, on major Thanksgiving items. The thinking is, and it often works out to a profit, is that customers will buy lots more things than Thanksgiving stuff while we're already there.
Also, I don't know what everyone else serves, but in a few hours my aunt will be hosting her usual Thanksgiving dinner of turkey, filet mignon, salmon, lobster and shrimp. Now what percentage of Americans do that, and how are the generally higher prices of Westchester County weighted against the rest of the population? Oh, and she probably bought a lot of the things in the Danbury-Bethel area of northwest Connecticut. How is that factored into her purchase, let alone the estimate of the whole U.S.?
Prices are generally higher in Westchester than the national average. Most gas stations in neighboring Putnam County are 20 to 30 cents per gallon cheaper. It isn't because we have higher inflation, it's because the population is generally much wealthier than the national average and will bid higher prices for goods and services. This includes the higher prices for land that people offer, which eventually translates into higher prices at the stores built upon the land.
Baskets are simply a silly way to calculate inflation.
I've never referred to either calculation of CPI to justify my belief about inflation, since either one is still a basket.
The prices of basic flash memory MP3 players keeps dropping. The 8-gig Sandisk e280 costs as much as what I paid 15 months ago for a 2-gig version. The 2-gig version now costs half of what it did. Does that mean inflation is dropping, that the money supply has been deflated to half? Hardly. So why do we think the price of a Thanksgiving dinner necessarily indicates inflation, when it's too small a subset of goods and services to be a good measure? It also doesn't take into account that grocery stores are willing to make very small profit margins, if not go loss-leader, on major Thanksgiving items. The thinking is, and it often works out to a profit, is that customers will buy lots more things than Thanksgiving stuff while we're already there.
Also, I don't know what everyone else serves, but in a few hours my aunt will be hosting her usual Thanksgiving dinner of turkey, filet mignon, salmon, lobster and shrimp. Now what percentage of Americans do that, and how are the generally higher prices of Westchester County weighted against the rest of the population? Oh, and she probably bought a lot of the things in the Danbury-Bethel area of northwest Connecticut. How is that factored into her purchase, let alone the estimate of the whole U.S.?
Prices are generally higher in Westchester than the national average. Most gas stations in neighboring Putnam County are 20 to 30 cents per gallon cheaper. It isn't because we have higher inflation, it's because the population is generally much wealthier than the national average and will bid higher prices for goods and services. This includes the higher prices for land that people offer, which eventually translates into higher prices at the stores built upon the land.
Baskets are simply a silly way to calculate inflation.
Posted by: Perry Eidelbus at November 22, 2007 2:41 PM | What do you think? [1]