Friday, March 16, 2012

(Newish) Alternative Inflation Rate

The American Institute for Economic Research (a right-leaning think tank) made news about 2 weeks ago with their measure of inflation: much higher than the announced ones.

Their alternative is called the Everyday Price Index. Here’s why they get a higher rate:

There are several possible reasons for the divergence of the two indices that came about in the early 2000s. Rapid technological change restrained prices of products, especially those related to information technology. Quality-adjusted prices for mobile phones, personal computers, and televisions fell or increased much more slowly than prices of other consumer goods and services. The same was true for household appliances and even cars. At the same time, increasing globalization and reduction in trade restrictions drove down prices of apparel and other imported goods.

These prices, which are included in the CPI, helped restrain growth in the overall cost of living. But the prices are for products AIER deliberately excludes from the EPI. The price-reducing force of technological improvements and globalization does not restrain prices of everyday purchases quite as much as it does for less frequently purchased items. Toothpaste ain’t so high-tech.

I’m not a big fan of this sort of thing, but it does capture the sense that many people have that there is higher inflation for a lot of stuff.

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