I’ve discovered another way of figuring out whether prices, generally, are rising and how fast, i.e. the general rate of inflation. It’s MIT’s “Billion Price Project”. Here’s what they’re doing:
…our data are collected every day from online retailers using a software that scans the underlying code in public webpages and stores the relevant price information in a database. The resulting dataset contains daily prices on the full array of products sold by these retailers. Our data include information on product descriptions, package sizes, brands, special characteristics (e.g. “organicâ€), and whether the item is on sale or price control.
Clearly, that’s not a perfect measure but to my eye it looks better than the highly subjective (and prone to finagling) CPI. What does the Billion Price Project reflect? Viz.:
As you can see the BPP index is systematically higher than CPI. Even if the difference is small over time that becomes significant.
And I certainly think it’s more intuitive than the CPI. Does it really feel as though prices aren’t rising to you? Me, neither.
Hat tip: Tyler Durden
Prices going up secondary to increased global demand, or decreased supply as we have seen with grains, as opposed to an increase in money supply seem to be different phenomena.
Steve
Steve V. will be along presently to remind us that inflation is always and everywhere a monetary phenomenon.
When prices go up generally, not just on certain items but generally, in the presence of an expansionary monetary policy, it seems highly problematic to me to assert that none of that general increase is due to inflation. Further, under the circumstances I’d wonder how you’d disaggregate the effects of price increases from those of monetary policy.
Experientially is doesn’t make a danged bit of difference.
For me part of the significance of the BPP index is that it highlights how deeply flawed the CPI is. The CPI effectively makes the assumption that when the price of steak goes up but the price of hot dogs doesn’t since they’re perfectly substitutable just replace steak with hot dogs. How you can avoid political bias under such a rubric eludes me.
“inflation is always and everywhere a monetary phenomenon” is just semantic recursion. If you define it that way, then that’s what it is.
You need another word though for “price impact on our lives, that both make us hurt and/or switch consumption.”
I find this new measure interesting, but if we really care about ourselves, we should track our own consumption growth/reduction, and note our choices.
If I drive a Prius rather than a Camaro is it because I’ve changed, or something external to me?
(1995 Camaro Z28, 6 speeds on the floor, was one of the funnest cars I had)
” it highlights how deeply flawed the CPI is. ”
Is it really flawed if its primary purpose is as a tool for policy.If CPI goes up, you tighten monetary policy. If headline inflation goes up you grow more crops or whatever.
Steve
I do all the food shopping, and I have to say I haven’t noticed a rise in prices. Our food bill has been the same, plus or minus $10, for the last year. However, the rental price for a golf cart at the course I play has gone up 50 cents in the last month…
I think there is policy value in having a basket of goods concept, to focus on consumption that is important, like food, and not the wealthy indulgences like sam’s golfing.
Seriously though the measures appear to be roughly the same for the first eighteen months, and then in the last year BPP index trends higher. I wonder if that’s a reflection of an unequal distribution of pain from from the recession, that is more liked picked up in the goods and services measured by CPI.
“not the wealthy indulgences like sam’s golfing”
Uh, this is at the local muni, and I’m not wealthy. Seriously.
sorry, just a little levity.
But I guess the point was, the CPI has it’s basket of goods/services it’s monitoring. BPP has it’s basket, which constitute a changing selection of goods/services it can trace from a prior internet price. I think I might prefer a little more order in selecting the basket.
I’m with Dave, the cpi is a mess. Excluding energy and food because they are “volatile?” Why don’t we just make the DOW 3 stocks because we don’t want to mess with the others? And – personal perception certainly is not necessarily reality, but I’ll be damned if I’d say inflation is just 1.1%. Not in food, energy, taxes of all kinds, luxury goods etc. I guess that leaves housing. If you are buying, yes, prices down. If you already bought, nope.
Since Steve V didn’t take the bait, I will. I am not aware of any legit study that disproves the “always and everywhere” quantity theory. The best alternative I know of only asserts that changes in velocity disprove the assertion. From where I sit, that is only temporary.
And we are in one such period right now. Imagine if velocity does pick up and we have all those dollars sloshing around? I can’t imagine the calls we are now starting to hear about alternative “world currencies” are coming for any reason than the concerns I just raised.
In any event, as I mused recently, this could be the biggest financial call of our lifetimes.
I also do the food shopping for us and have decreased our budget because a number of our staples have declined in price.
Of course, it helps that we don’t eat any grains, period. Nasty things. Bad for your health. It has seemed to me that bread, tortillas, and other things seem to be a tad more expensive. I don’t know if it balances or not, but I do know that the price of milk has remained pretty steady for the past 6 months, and still remains below the 2009 peak I have recorded in my price books.
“I don’t know if it balances or not, but I do know that the price of milk has remained pretty steady for the past 6 months, and still remains below the 2009 peak I have recorded in my price books.”
Please tell me that’s a joke…..
Drew,
Do you know another way to budget groceries apart from keeping track of prices week to week?