Is Inflation Measured Wrong?

Money For the Rest of Us

J. David Stein

Investing, Investing Podcast, Business, Economics, Economy

4.5 • 1.4K Ratings

🗓️ 9 October 2019

⏱️ 30 minutes

🔗️ Recording | iTunes | RSS

🧾️ Download transcript

Summary

Why some analysts believe the Consumer Price Index formula understates inflation while others believe the CPI formula overstates inflation. What really matters to us individually when it comes to inflation.

Topics covered in this episode include:

What is inflation and what causes it.
How is the Consumer Price Index calculated and how has the CPI formula changed over time.
What are examples of different CPI measures.
Why do some analysts believe U.S. inflation is higher than what CPI states while others believe inflation is lower than what the Consumer Price Index shows.
How inflation calculations impact the measurement of other economic data such as the rate of poverty and the growth in real wages.
What are consumer attitudes toward inflation and why do central banks worry about changes in household and business inflation expectations.
How individuals can monitor and improve their cost of living.

Thanks to Sleep Number and Money For the Rest of Us Plus for sponsoring the episode.

For show notes and more information on this episode click here.

[0:18] Traditional methods of measuring inflation.
[4:00] The CPI has changed from a fixed-basket approach to a consumer-representative approach.
[6:39] The controversy concerning the accuracy of CPI measurement.
[9:11] Is inflation overstated because of how the CPI-U is calculated?
[11:23] Rwanda case study: the connection between inflation and poverty.
[15:17] Why governments care so greatly about the public’s view of inflation.
[17:31] How inflation expectations are measured.
[18:52] How do we calculate the desired standard of living?
[20:41] The CPI isn’t an accurate depiction of the standard of living.
[24:20] Are you satisfied with how you spend your money?

See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Transcript

Click on a timestamp to play from that location

0:00.0	Welcome to Money for the rest of us. This is a personal finance show on money, how it works, how to invest it and how to live without worrying about it.
0:09.0	I'm your host David Stein. Today is episode 272. It's titled, Is Inflation Over or Understated?
0:18.9	I discussed inflation what it is back in episode 162 and 190.
0:26.4	It's the rise of prices over time.
0:30.6	And it's caused in theory by the amount of money in the economy increasing at a faster
0:37.4	rate than the amount of goods and services available to purchase.
0:42.2	If the amount of new dollars available is growing at a faster rate than the amount
0:47.1	of new goods and services that can push up prices. The primary activity that leads to the creation of new money is commercial bank lending.
0:57.0	When banks make a new loan, that creates a new digital bank deposit which the borrower can then spend. The more banks lend, the more
1:06.0	money created, and the greater the risk inflation will accelerate. Now that's what causes inflation in theory, but in order for inflation to occur,
1:17.0	businesses need to raise their prices. They need to sense that in order to make a profit, they need to increase what they're charging for goods and services.
1:26.4	And we'll see in this episode that's a little bit subjective.
1:29.6	It's hard to tell if inflation or prices are increasing and at what rate.
1:37.0	In this episode we're going to look at how inflation is measured and why that leads to such controversy. In the US the primary
1:45.4	measurement of inflation is calculated by the Bureau of Labor Statistics. It's the
1:51.2	Consumer Price Index. It represents the
1:55.0	the CPI, all goods and services purchased for consumption by the
2:00.3	reference population. And we typically in this episode we're going to focus on the
2:03.6	you measure which is basically across all households and businesses. They break it down
2:09.2	into 200 categories arranged in eight major groups. Food and beverages, housing, apparel, transportation,
2:19.3	medical care, recreation, education, communication, and other goods and services.
2:27.0	Within the calculation, it includes government charged user fees such as water and sewer charges, registration fees for cars, vehicle
	...

Please login to see the full transcript.

Previous episode | Next episode

Disclaimer: The podcast and artwork embedded on this page are from J. David Stein, and are the property of its owner and not affiliated with or endorsed by Tapesearch.

Generated transcripts are the property of J. David Stein and are distributed freely under the Fair Use doctrine. Transcripts generated by Tapesearch are not guaranteed to be accurate.