Thursday, February 17, 2022

Is the Consumer Price Index a truly accurate measure of inflation?

I have often thought that the inflation rate; specifically the Consumer Price Index, has been under estimated for several decades. Now, I hear some economists in the media saying the same thing.

Official inflation indexes have not adequately factored in the cost of housing in the overall mix. If housing were weighted more accurately, inflation would have been higher over the last 30, or so, years.

I would think the inflation, that we have now, is not as shocking as some folks think since, in a way, it's nothing new.

How data is figured depends, a lot, on who's doing the figuring. For instance; if the standard household was a large family who had already paid off most of their mortgage, the price of groceries would weigh higher. More mouths to feed and the house already almost fully purchased.

On the other hand, a single person just starting out buying a house today, or renting an apartment, would encounter a totally different situation. Grocery prices might not be that big a deal compared to rising rent. The nature of inflation largely depends on what type of household is being considered.

No comments: