1. There are things like “shrink-flation” not captured. I’ve noticed most packaged goods have reduced in size 10-20%. Eggs have more than doubled, milk is up 25%, etc
I don’t care what the government publishes. My friends around the country all confirm this. My own bills (I track itemized) show it as well. Though, to your point, much of the increase occurred in 2021 - it just never came down.
2. Fuel is only down because the US has used its strategic reserve to increase supply. At the same time demand dropped dramatically, with China lockdowns & increased prices forcing manufacturing / transportation to cease. Now the election season is over I suspect the strategic reserve will stop being drained; further if price caps work on Russia… we will see a massive reduction in the global fuel supply (Russia will just stop pumping as its unprofitable).
> There are things like “shrink-flation” not captured
I hear this everywhere, but as far as I can tell its a complete myth. The "basket of goods" that CPI is based on does keep track of changes in quality and quantity of the goods.
> If the selected item is no longer available, or if there have been changes in the quality or quantity (for example, a container of orange juice containing 59 ounces instead of 64 ounces) of the good or service since the last time prices were collected, the data collector selects a new item similar to the old item. This is referred to as a substitution.
> When substitution occurs, the commodity analyst reviews the new item and price. The new price may be quality adjusted for use in index computation. Conceptually, the CPI seeks to be a constant-quality measure, though accurately quantifying quality change may not always be possible. Detailed information about quality adjustment procedures is in the calculation section.
This is a key point and massive misunderstanding in everybody I know : there's this expectation that when "inflation slows down", then "prices will return to normal". But that's empathically not what it means.
If prices rose whatever percent last 18 months, and inflation drops to zero tomorrow... Prices will stay exactly the same. They just won't increase further day to day any more (at zero inflation).
"Inflation is still high, I know that because prices are still up compared to before " is a logical error.
The real struggle is the government - fed, treasury, etc all claimed the inflation was “transitory”. A lot of people have been caught off guard. Aka people expected a deflation.
I was pointing out most of the increase the last 3 years occurred in 2021. I actually believe 2022 has far higher inflation than they claim in government figures. At least locally, it’s higher based on my tracking.
2023 will be worse for food due to fertilizer issues, I suspect fuel prices will also increase. Effectively, expect more expensive commodities. That said I’d suspect housing and other goods being kept up with loans to decrease.
For fertilizers - it takes ~10 years to get potassium online, for instance. The other chemicals take 3-5 years, so we shall see how this goes.
> The real struggle is the government - fed, treasury, etc all claimed the inflation was “transitory”. A lot of people have been caught off guard. Aka people expected a deflation.
The prediction that inflation spike was transitory (which was universally abandoned anyway) was not a prediction of a rapid return to past prices, but of a rapid return without significant policy intervention to normal rates of inflation.
> At least locally, it’s higher based on my tracking.
Local inflation tends to differ from the national average one way or the other, and I doubt your tracking is anywhere close tonas comprehensive and systematic as any of the major federal government inflation measures.
OTOH, the PCE—which is what the Fed uses to guide police decisions—during the spike has jumped higher than the CPI and came down slower, so “the CPI has understated recent inflation” is part of the premise of recent monetary policy.
> fed, treasury, etc all claimed the inflation was “transitory”
That is precisely what "Core measure rose 0.3% in December" means. The period of high inflation is (apparently) over. The price increases that inflation generated will tend to stick around.
1. Nobody is saying that there has been deflation, so yes, prices that have gone up will remain up. The old baseline, the one in your head, that's gone. The question now is will prices keep going up, and the answer seems to be no.
In addition, a series of issues unrelated to monetary policy have hit individual items like eggs (avian flu) and lettuce (INSV) and so on, because food is messy.
2. The election season has been over for two months, and yet the SPR is continuing to contribute to US supply[0], so apparently not everybody thinks solely in election terms.
Russia is more complicated; they are at least as focused on their limited opportunities to earn and spend money given sanctions as on hurting us, which they might see as less easy to do now that the election season has been over for two months.
> 1. There are things like “shrink-flation” not captured.
Poppycock. From StatCan, who do the CPI numbers in Canada:
> 7.10 Quantity adjustment entails accounting for changes in the quantity (e.g. package size, number of tissue ply, etc.) of observed POs. This is another implicit method of quality adjustment because it is assumed that the quality per standardized unit is the same over time.
> 2. Fuel is only down because the US has used its strategic reserve to increase supply.
Fuel is down in Canada as well, which has no strategic reserve. Or it could be because geopolitical events have stabilized a bit and global oil prices are down:
> Though, to your point, much of the increase occurred in 2021 - it just never came down.
Yeah, the data is inflation going down (and not to negative values) year over year, not prices going down. Just means prices are inflating slower, not going negative.
And shrinkflation has been around for decades. It was a thing even when inflation was at 'normal' 2% levels.
Edgar Dworsky is the guy that all the media companies bring on as the expert on shrinkflation (just look up his name, pretty much all news sites have articles about him), has had his blog up pointing out all the instances of shrinkflation since as far back as 2006[1].
RE 2: As far as I can tell the last strategic reserve sale occurred in mid-November with no sales in December / bids for repurchases being solicited. It's possible that the supply effects continued through December, but it seems a bit tenuous without economic modeling.
How much of the average shopper's budget is eggs? If it's not that big a percentage then you're just not going to see it in the overall inflation rate, and you wouldn't expect to.
Eggs are significant ingredient in many homemade things (eggs, bread, pancakes, pastas, brownies) and one of the cheapest,cleanest protein sources in the American diet.
The Aivian flu + inflation caused a carton of 18 eggs to increase in price more than 50% recently (<$5 to > $7.50).
My household has fought this increase by increasing mushrooms and spinach in our eggs, and recently hybridizing with liquid egg whites.
> Eggs are significant ingredient in many homemade things (eggs, bread, pancakes, pastas, brownies) and one of the cheapest,cleanest protein sources in the American diet.
Yes, and food makes up ~13% of the BLS CPI. This is taken into account when they do their surveys to see what people are spending their money on:
Remember that the CPI is the national average inflation for an average basket of goods, and not your personal inflation. In Canada, StatCan actually has a personal CPI tool so that you can see how things are for your personal basket of goods:
Sure, you can cherry-pick individual items to tell pretty much any story you like.
If the 60% increase in butter prices over the last year is hitting your budget, you probably would benefit from eating less butter. (And I say this as someone who eats a good amount of butter...)
At some point it stop being cherry picking and becomes an actual measure.
The official BLS numbers are underreporting inflation. Overall, groceries are up roughly 35-50% since 2020, while the official numbers would have you believe the inflation was 18.17% over 3 years.
BLS does a lot of trickery to generate favorable numbers. There are "quality" adjustments, there are "core" inflation indicators, which exclude goods with high price fluctuations (e.g. eggs).
I buy a pretty diverse basket of goods (groceries too) overall, and so far, none of the official inflation figures have even come close to my observed price increases.
Lumber, tools and hardware in home improvement stores are all up 30-60%. Food, like I said, is up 30% at minimum since the start of the pandemic.
Maybe clothes and TVs kept a stable price, but who cares?
Perhaps its the people who cook with a lot of home ingredients (eggs, meats, vegetables, fruits) that are feeling the most pain. My food budget has gone up 25% in the last year for the same basket of goods. I track those numbers pretty consistently.
If you purchase more or less food than average, then your personal CPI will be different that the average that is reported in headlines. Further, the fact that you see some the price (inflation) in your face regularly is a form of cognitive bias:
People noticed petrol prices go up and that inflation, but they're thinking less about the deflation of petrol going down, probably because they think the lower prices are "normal".
That's just more cherry picking. The appropriate thing to do is to create a collection of food items that represent some sort of average of the population expenses and measure that.
And when they do this, they compute that food-at-home rose 0.2% in December (2.4% annualized).
Eggs are way up. Fortunately, the government takes a blend of different products and presents the overall price change. If we made policy off the whims of onion prices, for example, we'd be in for a wild ride.
Every month for the last six months has produced the same comment. Overall inflation is low so somebody picks out a specific thing that went up a lot and implies that the government numbers are either misleading or lies. Interestingly, it is a different chosen product each month.
Egg prices are also being driven largely by disease and culling and don't really represent something that should be attacked with monetary policy.
isnt his point that the price of groceries has recently only grown a small amount? compared to previous months or quarters which have grown quite a bit
For folks unaware, the reason eggs have become more expensive in the US is due to an avian flu that is killing a significant number of egg laying hens.
That's 12 eggs a week. So if the price of a dozen eggs has gone from $2 to $5 you are out... $150 a year. And that's for a sizable outlier in egg consumption. It isn't hard to see how this doesn't push overall inflation very meaningfully.
Most store-bought dried pasta has zero egg in it.
An entire homemade cake has like three eggs in it. So the price of an entire cake is up less than a dollar. How many cakes does the average household bake in a year?
- Cheapest (Cheaper than pork and chicken per g of protein)
- An important ingredient (as a lectin) in many baked goods
You then turn this into an absolute number for 1. But your absolute number of a $150/person/year would certainly approach 10% of my annual grocery spend... which lines up. Your absolute number would be frightening for a family of 4 making the median income.
Inflation is not personally affecting me negatively - for the record, I think it's a reversion to the mean and 10 years of fed targets finally being achieved.
Also, it seems pretty silly to talk about a dollar of extra cost as a problem in the context of making homemade pasta. Homemade pasta is a time intensive luxury.
There are other knock-on effects....avian flu, weird hiccups in the supply chain. I'm curious to see how this will affect day to day stuff as so many thing I run into just get filed under 'the times we live in'.
* Fuel oil -16.6%, biggest decline since February 1990
Seems important to point out to anyone reading your comment