@Campitor
Before going to SC, I was in a little town in Indiana for about 45 days. My food expenses were nearly 50 cents lower per day in Indiana vs SC. Sans local subsidies I don't see how taxes could be an impact in this case. This is of course not statistically sound data, but it gives the impression that costs are lower in rural America. Add to that a fed working paper suggests there is
no significant difference between urban and rural regarding inflation in the long run. Of course this doesn't ensure that inflation is lower in rural America today, but it does imply inflation isn't some monstrous beast eating non-city dwellers alive.
@white belt @Qazwer
In general I don't think the federal reserve is specifically related to the accuracy or inaccuracy of the CPI in regards to what they measure, however I did find an article that might cause me some doubts on that view:
"Normally, economists expect rents and home prices to move together in a given community. That’s because both respond to the same underlying conditions — a strong labor market, popular amenities, proximity to the ocean. When rents and home prices start to diverge, that’s usually a sign of something amiss, like a housing bubble inflating." -
https://www.nytimes.com/2021/02/26/upsh ... -gone.html
I quote the above NYT article because it might capture one way inflation might be getting hidden. Here is the BLS explaining how they calculate home price inflation:
"Housing units are not in the CPI market basket. ... Shelter, the service the housing units provide, is the relevant consumption item for the CPI. The cost of shelter for renter-occupied housing is rent. For an owner-occupied unit, the cost of shelter is the implicit rent that owner occupants would have to pay if they were renting their homes." -
https://www.bls.gov/cpi/factsheets/owne ... d-rent.pdf
Regarding Ms. Booth, I am very aware of her extremely pro market views as well as her anti fed views. I prefer
Jeff and Emil for that sort of analysis as I think they are a bit more reserved on the political front, but perhaps that is just taste.
My effort to understand inflation and the components was less to do with what the future of inflation is and more to do with the idea that the gov't cpi has been lying about inflation for the last n years, like how alternative indexes (e.g. shadowstats) imply. If shadowstats was even remotely accurate then you would conclude assets like gold were not very good inflation hedges. Given silver/gold's alleged inflation fighting properties did not seem to be responding to what some folks are alleging right now- high[er] inflation, it is worth asking if the measure is working. I thought it would be interesting to explore if inflation really did look like many of the alternative indexes claim inflation looked like and thus built a spreadsheet.
I would say from my exploration, CPI seemed pretty accurate or when CPI failed, it still seemed to be more likely than not in the inflation rate was sub 4%, which is near enough in my mind. If I was to be convinced there were real failures of CPI I would need to find obvious larger price trend increases in some bigger categories.
In my review, there were a few notable exceptions, particularly healthcare, rent and cars. The car I measured was about 5% inflation and given the fancy new gadgets cars get and much longer life, I could legitimately imagine a CPI egghead adjusting it down from 5% to 3%. If you need to repair your car less frequently and need to put less gas into the car, that might further justify the shift.
Healthcare was at 7% although I admit I am less sure of the data on this one. If I was to accuse CPI of spewing falsehoods, healthcare is where I'd point the blame. However, it does seem like nearly everyone knows healthcare is going crazy expensive and if shadowstats is saying general inflation is 8-or-9-or-10% a year, above my long term trend of healthcare, it becomes painfully obvious shadowstats must be wrong. Still it is high and maybe this is a legitimate place where the government is suppressing, but even if I doubled the impact of healthcare, it would only increase inflation by about 1%. Furthermore, could healthcare be fixed? Yes, if we believe any other large wealthy country's statistics, so even if CPI is wrong due to healthcare, it is only wrong because of wasteful health care expenses.
The example of rent I provided is also at 5% inflation, but given that home sizes in general have increased, I again can imagine the CPI eggheads adjusting it down to 4%. In fact, in the link I provided previously, they cite a place in Silver Springs Maryland which only saw 4% inflation from 1958 until now (they had an ad from 1958 they posted). Given the variability of real estate, I don't think that saying 4-5% is too far off. The fed claims ~3.7% from 1958 until now, near enough in my eye to 4%. So 4% rent and 7% health care might raise an eyebrow, but then there are all the deflation items like cell phones, computers, entertainment, etc.
We can argue if CPI is right or if a fixed 2-or-3-or-4% a year would be a more accurate estimate, but CPI is a tool that seems reasonably to reflect reality of what it claims to measure, at least up until now. So far I have seen no empiric challenge to this basic claim, only philosophical disagreements with its existence or use, debate about its accuracy for sub groups or fears it will be wrong in the future. I do not mean to dismiss these, but they are not the challenge I was trying to tackle. I wanted to know if CPI does what it says on the tin and it seems to.
So why so many accusations of lies or inaccuracies regarding CPI? Some of it is the recent money printing or the asset bubbles we all see, but I have seen these sorts of "CPI is a fraud" claims for years, perhaps decades. What I conclude is similar to what Elizabeth Warren said in a
2007 presentation (I saw this years before she became a politician, right about the time 'bazooka money printing' became an inflation scare). I think that the reasoning CPI is felt to be a lie is because the expenses that a typical family believes are flexible have gone down while the so called inflexible expenses have gone up. That is to say, spending on rent, cars and healthcare went up while computers, phones, clothing and electronic toys went down. This may make a lower priced basket, lowering the inflation rate but it doesn't feel lower, to say nothing of wages stagnation for many.
Jacob of course throws that all on its head by changing how, what and why you spend and that to me is one of the core elements of why ERE style FIRE works, you avoid high cost, high inflation expenses. However ERE does still spend money and that at least is one of the possible ways ERE could fail or be impaired in the future. That is to say, what if inflation stayed at 3%, a gold inflation hedge would do nothing special, as the inflation for cars and healthcare went up at 1% while lentils went up at 20% a year? Your inflation hedges might not work unless you hedge very specifically. This to me is the value of thinking about a ERE-specific style of inflation risks rather than debating if CPI got the decimal place right. @Hristo Botev gave a great example with how even if their inflation was not impacted, their social capital might be impacted by inflation. I would love to hear other ways ERE might fail due to unexpected inflation problems, even when properly hedging against general inflation. The thing is, you can't hedge risks you don't see and I want to have less of those if possible.