[macksd]

And yet that's the same kind of distinction that you need to understand to be able to make decisions about household debt. If we're honestly at the point where this is considered too confusing for the masses, I think I've stopped thinking democracy is a good idea.

[mlyle]

If there's a true step change that happens once (and nothing else), inflation looks like:

0% 0% 0% +10% +10% +10% +10% +10% +10% +10% +10% +10% +10% +10% +10% 0% 0% 0%

If there's a .8% price increase per month, every month, it looks like:

+10% +10% +10% +10% +10% +10% +10% +10% +10% +10% +10% +10% +10% +10%

The upside of reporting this way:

* Seasonal effects are (mostly) removed

The downside:

* You have to have a lot of context about surrounding numbers to try and distinguish between these scenarios.

* The drop from +10% to 0% is not related proximally at all to the real change.

* Even if you are careful in interpretation, information and context are removed.

It's not very user friendly or useful as a single number to get an idea about what's happening with prices now.

> If we're honestly at the point where this is considered too confusing for the masses, I think I've stopped thinking democracy is a good idea.

I have a lot of knowledge about economics and mathematics, and it's frequently confusing for me and difficult to tease out what's really happening with prices from a couple of macroeconomic aggregates. If that makes you give up on democracy, uh, so be it.

[danielmarkbruce]

And it's not even a theoretical issue. Look at the energy component of CPI. And then consider how that flows through to food and transportation. It is very possible that the vast majority of what we are seeing is the result of a big jump in energy prices over a few months, 8-10 months ago.

[mlyle]

> Look at the energy component of CPI. And then consider how that flows through to food and transportation. It is very possible that the vast majority of what we are seeing is the result of a big jump in energy prices over a few months, 8-10 months ago.

Well, that makes it even worse, the "flow through" you're describing from prices increasing because an input price increased. That spreads the initial shock over a longer term.

But the effect I'm describing shows up even if it's just a single good that steps once. What's measured in the YoY inflation number is a convolution/FIR filter of 12 months of changes.

[danielmarkbruce]

yup, you are right.

[gwright]

Maybe that is why we have a republic with representatives? Of course we can just shift the discussion to point out that US Congress critters don't seem to have a strong grasp on these topics either. :-(

[macksd]

I think that's exactly why we have a republic with representatives, but I don't even think people are qualified to pick good representatives. A campaign can easily pander to people who are acting selfishly or stupidly. At the end of the day, if you have people who can't even understand compound interest by the time they're entering university and who can't do a cost-benefit analysis on loans, why are those people supposed to catch nuances in monetary and fiscal policy and select from a panel of alleged experts?