FAKE FINANCIAL NEWS
Fix the CPI or Bust A new century dawned a long time ago. When will the Consumer Price Index catch up to the way we actually live? By Vonetta Logan
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have a framed print that I found at a local art fair. (No, it’s not Live, Laugh, Love. I’m not a psychopath.) It’s a picture of a Chihuahua with the caption, “I work hard so my Chihuahua can have a good life.” I don’t often think about inflation and the Consumer Price Index (CPI), but I do think a lot about what it’s going to take to keep my Chihuahua in the lifestyle to which she’s accustomed. I’m sure the same thought runs through the heads of sugar daddies as they log onto seekingsugarbaby.com: What’s it going to take to keep Kandiss in the lifestyle to which she is accustomed? In terms of plum writing assignments, “ramifications on consumer discretionary spending during sustained periods of inflationary pressure” ranks just above “first-person account of a root canal.” But we’re going to make it work. The U.S. Bureau of Labor Statis-
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In an age when everyone knows everything about you because your data is in the cloud, the U.S. economy is still using a rotary phone. tics (BLS) produces the CPI, the most widely used measure of inflation in the United States, and by some accounts, it’s the highest it’s been in 30 years. But if you Google “What’s wrong with CPI?” a litany of issues arises. Man, who knew economists could be so ornery? Their calculations vary wildly, and they don’t agree on whether the CPI is overstating or understating inflation.
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When it was created, the CPI simply compared the cost of a fixed basket of goods between two time periods. OK, if my little basket of groceries last month cost $100 and then this month cost $125, that’s inflation, baby! But that doesn’t tell the whole story, so now CPI has evolved into a cost of living index. This method “takes into account changes in the quality of goods and
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substitution. Substitution [is] the change in purchases by consumers in response to price changes,” writes Investopedia. There’s a lot of nuance to consumer spending. The price of one good may not go up by a measurable amount because people stop buying the most expensive item and instead buy a cheaper one, thus substituting it. Or, consumers might spend a lot of money on a product or service at the onset, but that product or service is of much higher quality than was previously available so they don’t need to buy it as often. In his book The Inflation Myth, Mark Mobius writes that “it’s hard to define
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