Firstly, great article. Secondly, I was curious what index you used for the CPI research series. I found this one on FRED: Research Consumer Price Index: All Items, Index 1982=100, Seasonally Adjusted (CPIEALL).
But the graph doesn't look like yours. Maybe I'm missing smth embarrassingly obvious here but if not, could you point me in the right direction?
Quick follow-up. And this may just be my inexperience or lack of understanding these data sets, but I see your graph going a little over 750, but when I download the research series data, 2020 december is ~380. Ideas where I'm messing up? Really appreciate your reply by the way.
Keep in mind these numbers are just indexes, they only measure change over time. I re-indexed them, so instead of December 1977=100 I put January 1960 = 100.
First off, it's just wrong that Unlearning Economics (UE) was saying we are measuring inflation incorrectly. Instead, UE's point was that addressing inflation concerns atm means addressing supply-side issues. But this seems to be what you think too. Here's a quote from the article below "the transitory inflation we are currently experiencing is more a result of pandemic-related shortages".
I was linking to the article solely to bring up the point that inflation is a measurement of the value of the dollar, not a measurement of cost of living even though the two concepts are often treated as the same.
Precise language is hard here, and I am definitely guilty of imprecision myself. There really is no way to measure the value of the dollar except by collecting the prices of goods/services, but changes in the prices of individual goods and services are often divorced from long run changes in the value of the dollar (hence the volatile nature of headline inflation metrics). Plus there are always relative price changes happening throughout the economy (think of the shift from services to consumer durables and electronics as the pandemic started) that may increase PCE inflation prints but don't represent real shifts in the value of the dollar.
Another important point in both articles (and the "fight inflation with housing" article) is that efforts to improve supply in "bottlenecked" sectors will usually manifest as higher economic growth rather than reduced inflation, as the interaction between productivity, production levels, and monetary policy works to keep the value of the dollar decreasing at a relatively stable rate. This does not mean that we shouldn't focus on supply issues (economic growth is good after all!) but it means that solving the housing crisis in America won't simply pull inflation down to 1%.
What's the difference between the value of the dollar and the cost of living, to you? The fact that the article seems to be saying contradictory things (e.g. that the cost of living is different than the purchasing power of the dollar) makes me think you're using different definitions than me here.
CPI/PCE measure the purchasing price per unit of goods/services, not the value of dollar at all. CPI and PCE have different goods unit systems. That's all. CPI-W(wages measurement) is used by Social Security for Cost of Living adjustment.
Joseph,
Firstly, great article. Secondly, I was curious what index you used for the CPI research series. I found this one on FRED: Research Consumer Price Index: All Items, Index 1982=100, Seasonally Adjusted (CPIEALL).
But the graph doesn't look like yours. Maybe I'm missing smth embarrassingly obvious here but if not, could you point me in the right direction?
Hi Zeno,
The data you're looking for is here (https://www.bls.gov/cpi/research-series/r-cpi-u-rs-home.htm)
CPIEALL is actually the research series for the CPI for Americans 62 years and older (https://www.bls.gov/cpi/research-series/r-cpi-e-home.htm#:~:text=The%20BLS%20calculates%20a%20research,the%20construction%20of%20this%20index) which is why your results look different. There are actually several CPIs that get published-- CPI for All Urban Consumers (which is what gets the headlines), CPI for Wage Earners and Clerical Workers, and CPI for Americans 62 and older.
Thank you Joseph!
Quick follow-up. And this may just be my inexperience or lack of understanding these data sets, but I see your graph going a little over 750, but when I download the research series data, 2020 december is ~380. Ideas where I'm messing up? Really appreciate your reply by the way.
Keep in mind these numbers are just indexes, they only measure change over time. I re-indexed them, so instead of December 1977=100 I put January 1960 = 100.
understood! thank you for the help.
So I was clicking through some of the links in this excellent article, and I got really confused by this one:
https://www.singlelunch.com/2021/09/20/inflation-is-not-cost-of-living/
First off, it's just wrong that Unlearning Economics (UE) was saying we are measuring inflation incorrectly. Instead, UE's point was that addressing inflation concerns atm means addressing supply-side issues. But this seems to be what you think too. Here's a quote from the article below "the transitory inflation we are currently experiencing is more a result of pandemic-related shortages".
https://apricitas.substack.com/p/yes-inflation-is-transitory
Am I misunderstanding you? Or did you just that article because of its discussion on cost of living vs. inflation?
I was linking to the article solely to bring up the point that inflation is a measurement of the value of the dollar, not a measurement of cost of living even though the two concepts are often treated as the same.
Precise language is hard here, and I am definitely guilty of imprecision myself. There really is no way to measure the value of the dollar except by collecting the prices of goods/services, but changes in the prices of individual goods and services are often divorced from long run changes in the value of the dollar (hence the volatile nature of headline inflation metrics). Plus there are always relative price changes happening throughout the economy (think of the shift from services to consumer durables and electronics as the pandemic started) that may increase PCE inflation prints but don't represent real shifts in the value of the dollar.
Another important point in both articles (and the "fight inflation with housing" article) is that efforts to improve supply in "bottlenecked" sectors will usually manifest as higher economic growth rather than reduced inflation, as the interaction between productivity, production levels, and monetary policy works to keep the value of the dollar decreasing at a relatively stable rate. This does not mean that we shouldn't focus on supply issues (economic growth is good after all!) but it means that solving the housing crisis in America won't simply pull inflation down to 1%.
What's the difference between the value of the dollar and the cost of living, to you? The fact that the article seems to be saying contradictory things (e.g. that the cost of living is different than the purchasing power of the dollar) makes me think you're using different definitions than me here.
CPI/PCE measure the purchasing price per unit of goods/services, not the value of dollar at all. CPI and PCE have different goods unit systems. That's all. CPI-W(wages measurement) is used by Social Security for Cost of Living adjustment.
What measures the value of the dollar, then? And what is "the value of the dollar" exactly, like the value compared to what?
Value of Currency and 2 kinds of Price of Money :
1. Exchange rates measure Value of Currency. IRP/PPP/IFP are theories of exchange rates.
2. Purchasing Price of Money is inflation(purchasing goods costs)
3. Borrowing Price of Money is interest rates(borrowing money costs)