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Except food is less valuable than it once was thanks to changes in production techniques being able to produce a whole lot more of it for a fraction of the cost.

Ideally, inflation only observes the change in value of the currency. Easier said than done, of course.

[SideQuark]

> Except food is less valuable than it once was thanks to changes in production techniques being able to produce a whole lot more of it for a fraction of the cost.

There is no "except." This is central to inflation definition and econometrics.

As a result the average budget spends less on this component. Inflation tracks a basket of goods of what people currently buy, then compares that to neighboring adjusted baskets. For example, we don't buy as many horses and buggies any more, so that component of the basket has phased out. Electronics has phased in.

> Ideally, inflation only observes the change in value of the currency.

Not really, since different goods do not always correlate in price, so there is no "value of the currency". There are values of goods priced in a currency, which do not move in lockstep.

Inflation is defined as the general rise in prices, and in this case is precisely measured relative to (several) baskets of goods obtained by statistical sampling of the US population. All the precise methodology, data, sampling methods, etc., are all easily found on the BLS website.

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> Inflation tracks a basket of goods of what people currently buy

Exactly. If there was no except, you could just peg inflation to an apple and be done with it. You need the basket exactly to filter out the noise that occurs when the goods in the basket see an independent change in value. Food is unquestionably less valuable today as compared to most of the past, irrespective of the change in value of the currency.

> Not really, since different goods do not always correlate in price

Exactly. That is because everything has its own independent value, including currency, which change over time independently. Let's say you can buy an apple for $1 today. But tomorrow a damaging storm decimated the apple crop. Now it takes $2 to buy an apple. Did the price rise because apples are now more valuable, or because the dollar is less valuable?

Who knows? It is impossible to know. But if you look at the change across many items...

> Inflation is defined as the general rise in prices

Exactly. The general rise in price is the value of the currency declining. It is statistically improbable for all the items in a basket of goods to gain in value at a similar rate all at the same time. As such, you can conclude with near certainty that the rise in price is a result of the decline in value of currency.

As it pertains to the above, if a general rise in price over a given period is 25¢, while apples are up $1 over the same period, then you can reasonably surmise that the storm caused apples to become 75¢ more valuable than the previous state with the other 25¢ being a decline in the value of the currency.

There is no perfect way to measure the change in value of currency, but that's a really good way to do it. Which is why we do it.