The link to John Melloy’s post in our early reads caused a bit of a stir. Sure John Williams is a bit controversial, but he has been hammering on the “Official Data Understates Inflation” for decades now.

Sometimes, it helps to shift your perspective ever so slightly to get a better view on things. The chart below, which only looks at price rises greater than +/- 5%, will do that. (Mad props to Invictus for the chart work)

It is clearly the high-frequency items – primarily food and fuel – are creating most of the angst (Household insurance at 8.5% is one of my peeves).

But we typically don’t buy motorcycles, major household appliances, computers, or televisions on a weekly or monthly basis, and they have been deflating hard. (See Hackonomics take down of Hedonics as to why)

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YoY Changes in Price Index Categories (+/- 5%)


Data source BEA

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Note: We get fresh numbers Friday, so this is an early glimpse of where we are . . .

Category: Consumer Spending, Inflation, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

24 Responses to “What is REALLY Rising/Falling in Price: Items +/- 5.0”

  1. franklin411 says:

    This data vindicates Mr. Bernanke.

    Putting the US into a depression, as the goldbugs and fiscal hawks and associated loons would like, would not do a thing to cut Chinese, Brazilian, and Indian oil consumption. “Drill baby drill” won’t help…you can drill all you like, but it doesn’t change the fact that our oil reserves are essentially tapped out. The only possible solution to this problem is to become energy independent over the course of 30 years through nuclear and renewable energy solutions.

    But that’s a mouthful, and it would require a level of political sophistication amongst the public unseen since the generation of childish shirkers known as the Baby Boomers came to power.

    It’s so much easier just to blame the problem on ole’ Ben.

  2. Guillermo says:

    hedonic adjustment gets an undeservedly bad rap IMO. They’re not replacing filet with hot-dogs, they’re replacing apples with pears or ice-cream with sorbet.

    In any case, inflation measures based on prices are fucking retarded. They’ll never work. Ever. Impossible. It’s an objective/subjective disconnect thing.

    You can try to measure changes in nominal prices (objective) but in any basket of goods you will be unable to observe the change in value of the basket to the purchaser (subjective).

    For example, my little sister is highly impressionable. 3 years ago she ate steak whenever she could afford it. She loved it and, to her, a good meal value was a reasonably priced steak. She was outraged by WholeFoods prices for vegetables and found more value in the bigger, shinier (wax) Publix produce. Fast-forward 3 years later, and now those ugly small apples are worth a premium to her. That small apple has more value than the old big apple, and a really good salad and some imported olive oil are 100x better than the finest piece of aged sirloin.

    which is like the best argument for monetarist definition of inflation and deflation. measuring consumer prices is a lost-cause. there’s simply no way to objectively measure the aggregate of 300MM subjective values.

  3. James says:

    Perhaps I’m not fully appreciating the chart, but I don’t see two very big ticket items, college costs and health care costs. I’m assuming these fall outside of the threshold for the chart, yet their actual costs to families can be much, much higher than many of the items listed.

  4. klhoughton says:

    Commercial Banks have gotten 10% less expensive? Really??

  5. TripleSigma says:

    Basically things people NEED are rising in price. Things people WANT are falling.

    That makes perfect sense.

  6. wally says:

    Where’s the ‘wages and salaries’ line?

  7. cognos says:

    Im sorry… you simply CANNOT UNDERSTATE inflation… if housing is going down 10-20%.

    Its impossible. Housing is 20x to 100x gasoline. Prices MUST be going down… with housing.

    7 of the top 10 on this chart… are simply, “gas prices”. Why does he say that 7 different ways? (To manipulate, thats why).

  8. wally says:

    “Basically things people NEED are rising in price. Things people WANT are falling.”

    Quite true. Pricing power comes from monopoly power.

  9. cognos says:

    Healthcare costs are the real intellectual battleground on inflation.

    On the one hand, this makes up almost 1% of the long-term measured, recorded inflation in our statistics. Since this is only 2-3% lately… its mostly healthcare.

    On the other hand… the price of health, health outcomes, longevity, getting better, etc… especially when considering side effects and service levels… is on a massive decline. Drugs become generic! Once priceless cures become accessable to many.

    Therefore, again, inflation is clearly overstated.

  10. Kort says:

    This chart says that if you can avoid using oil, eating food, or taking a taxi, you’re pretty happy.

  11. It seems to me that the most striking observation from this data is this—-

    Yes, energy costs are going up, and of course the cost of things that use electricity and gas are going down…..you would expect this relationship to hold as the cost of using electronic & gas-consuming goods increases.

    Also not surprising that lease and other interest related costs are decreasing, since these leases cover items that when used consume….yes, electricity and gas.

  12. mns3dhm says:

    “Household insurance at 8.5% is one of my peeves.” How else could Geico, State Farm, Progressive, etc. pay for all the television advertising they run night and day?

    Want to have some fun with this? Call your current broker and tell them your going to shop your homeowners, auto, personal property and whatever other insurance products you buy from him\her with all his\her competitors and several independent agents. Then, do it! You can whipsaw insurance agents and lower your costs; you just have to take the time to do the research and make them aware they’re bidding for your business.

  13. Petey Wheatstraw says:

    QE and inflation are one and the same (the ability to inflate is the sole reason for having a fiat currency). In addition, public debt pretty much guarantees future inflation.

    Now, if you want to talk distribution of all of this new imaginary money, that’s another thing, entirely. It ain’t creating jobs, and it ain’t increasing wages for the vast majority of people. However, we do seem to have a passel of billionaires who get wealthier by the day as or government sinks into (offsetting) debt. I wonder where they’re getting all of that money? We have inflation, but we also have also allowed the money supply to be hoarded.

    cognos, RE: Healthcare:

    You mean like this?

    http://www.dailymail.co.uk/news/article-1364747/Preemie-outrage-Cost-makena-drug-prevents-premature-birth-rise-10-1500-KV-Pharmaceuticals.html

    As for houses going down in value, that’s exactly why we began and continue QE (inflation). It was a credit bubble. it was blown by the banks. It burst. The Fed immediately began printing/borrowing/redistributing in order to fill the void.That the Fed has not been able to shore up the broader economy (unemployment/stagnant or declining wages being particularly noteworthy), despite the massive infusions of liquidity, only serves to highlight both the extent (and massive criminality) of the shenanigans that bankrupted us, as well as the the Fed’s commitment to inflation as a means of saving THEIR (that is to say, the Corporatist) system.

  14. carpediem0496 says:

    Based on the list provided, it looks like most everything is increasing in price except for technology (which is forever in a deflationary environment).

  15. [...] What is REALLY Rising/Falling in Price: Items +/- 5.0  (ritholtz.com) [...]

  16. Jojo says:

    11 of the first 14 items (maybe all 14?) listed are not counted in government core inflation. Core inflation is also the number that gets touted whenever the inflation numbers are released.

    Inflation numbers don’t have any meaning when you are able to ignore all the things that are inflating.

    We should have an independent, non-government organization that computers important numbers like inflation and unemployment and release them to the public. The government should not be allowed to issue these numbers because there is too much opportunity to massage them for political gain.

  17. cognos says:

    Jojo — but almost all the “things” you reference are just gasoline! This isnt 11 items… its just 1!!

    I dont understand:

    House prices are DOWN 40%.
    Commodity price are DOWN 24% (CRB index since Jun 2008 is down 24%, just as Oil is down from 140$)

    How are you guys talking about inflation? I dont get it?

    Since the early 80s oil price spikes… how much is oil up? Since 1995 commodities are up 1-2% annually.

  18. Jojo says:

    @Cognos – You forgot about food. There are some of those items in the first 14 also.

    You know that housing prices aren’t counted in inflation. The government uses rental equivalence.

    And why are energy prices not counted in core inflation but energy products ARE counted in the retail sales reports?

    As to your commodity statement, it depends on WHAT you are counting and from WHEN. Many commodities have gone up significantly in the last year. Maybe an economist cares what happened 10, 20, 30 years ago. Normal people only care what has happened recently. It’s like that old saw about your boss – tell me what you’ve done for me recently….

  19. Jojo says:

    So how do we get the government to return to the old method of computing inflation so we can get some “real” numbers?
    ===========
    Inflation Actually Near 10% Using Older Measure
    Posted By: John Melloy | Executive Producer, Fast Money
    CNBC.com
    12 Apr 2011 | 05:18 PM ET

    After former Federal Reserve Chairman Paul Volcker was appointed in 1979, the consumer price index surged into the double digits, causing the now revered Fed Chief to double the benchmark interest rate in order to break the back of inflation. Using the methodology in place at that time puts the CPI back near those levels.

    Inflation, using the reporting methodologies in place before 1980, hit an annual rate of 9.6 percent in February, according to the Shadow Government Statistics newsletter.

    Since 1980, the Bureau of Labor Statistics has changed the way it calculates the CPI in order to account for the substitution of products, improvements in quality (i.e. iPad 2 costing the same as original iPad) and other things. Backing out more methods implemented in 1990 by the BLS still puts inflation at a 5.5 percent rate and getting worse, according to the calculations by the newsletter’s web site, Shadowstats.com.

    http://www.cnbc.com/id/42551209/

  20. george matkov says:

    Barry, even the hedonics is petering out:
    - I don’t remember a single recall of Hondas or Toyotas in the eighties and nineties. We’ve had several in the past couple of years. Old timers in Japan are complaining that the new generation is not as quality conscious as their parents generation,
    - I’m hearing complaints about Sears Craftsman tools out of China being inferior to American-made stuff ten, twenty years ago,
    - Corellware out of China is inferior to the stuff I bought thirty years ago – and still use.

    Just dribs and drabs, but something may be happening.

  21. Winston Munn says:

    Seems to me this information can be summarized rather succinctly: if we really need it, it costs more; if we just want it, it costs less.

  22. Winston Munn says:

    Oops. Just saw above comment with like thinking – oh, well, great minds….

  23. [...] Inflation in food, energy and other necessities is skyrocketing, putting even more pressure on households at or near the brink of mortgage [...]