CD Player Dropped From Inflation Data, Phonograph Next?

from the neverending-treadmill dept

In the UK, the Office of National Statistics has decided to remove the personal CD player from the basket of goods which make up the RPI, the equivalent of our CPI, a measure of inflation. Nobody buys them anymore, the thinking goes, so the more popular and expensive mp3 player has replaced it. In the US, the Bureau of Labor Statistics, often make similar decisions. But does this make sense? Measures of inflation, when placed against wage measures, are supposed to indicate whether consumers are getting ahead. If prices go up, while wages stagnate, then that's a sign of trouble. Now, the reason that consumers buy mp3 players, and not CD players, is that they're better quality and a better deal. Or, put another way, consumers could still buy a high-quality CD player, and save a lot of cash for later. Either way they benefit. But, inflation data doesn't reflect this, it only notes that mp3 players are more expensive and thus the basket of consumer goods doesn't seem to go down in price. It seems that intellectual property isn't the only area in which the government has failed to adapt to new technology. Economic measurements need to show that consumers benefit from the rapid obsolescence and constant price deflation that marks the high-tech world.


Reader Comments (rss)

(Flattened / Threaded)

  1.  
    identicon
    Economy, Mar 20th, 2006 @ 7:59am

    Measures of inflation are not meant to indicate whether consumers are getting ahead. They are meant to indicate the price difference of the same set of products over time. And as you would like to now this price difference on stuff you actually buy, this set of products needs to be update once in a while.

    The measure you are looking for is called purchasing or buying power.

     

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  2.  
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    Chris H, Mar 20th, 2006 @ 8:03am

    The change makes sense to me.

     

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  3.  
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    RJD, Mar 20th, 2006 @ 8:28am

    Inflation data is a joke

    These numbers are pretty much whatever the government wants them to be. The two components that everyone ignores are food and gas (those things you really need to live and work) .. the two things that can't be manipulated. This leaves the 'core' inflation rate where the government can move items in and out at's in own discretion. They often replace an item (say detergent - Tide) with a cheaper brand of detergent (Say wal-mart's sunshine brand) to keep the rate 'tame'. The reason given that consumers will gravitate toward lower prices as long as they are available. While they may or may not be true, it masks the fact that prices are going up on products.

    So they moved the MP3 player in ... they probably moved something out of equal or close to equal value.

    Don't know about the rest of you folks, but my cost of living is going up beyond the annual 3.6% rate of inflation.

     

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  4.  
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    Glenn, Mar 20th, 2006 @ 8:34am

    Electronics prices fall rapidly...that $200 mp3 player will cost $50 in two years time...giving a misleading indication of inflation.

     

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  5.  
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    Topher3105, Mar 20th, 2006 @ 8:52am

    I don't get inflation period?

    Why do things have to increase in price at all?

    I mean, lets say we drop inflation, and everything is fixed in price as is today. Why should the fact that people get raises and pay increases cause the price of products to increase? Doesn't this mean that people will just buy more products thus making the companies selling these products richer?

    Intead, it seems that everytime I get a wage increase, taxes go up, the cost of living goes up, the cost of homes and cars go up, I don't ever seem to get ahead, so the net effect is that I am making the same (if not less) net profit year after year.

    Inflation also causes the poverty line to increase, as people who don't have a decent income or yearly wage hikes find it more and more impossible to make ends meet.

    I think inflation just some artificial occurance that justifies economics as a valid thing, and not just a science of statistics for meaningless things.

     

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  6.  
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    DerOoestericher, Mar 20th, 2006 @ 9:04am

    Re: I don't get inflation period?

    topher,

    inflation is caused because the gov't can't keep their hands off the printing press. As this new money filters its way in to the economy, things become more expensive...really, each dollar is worth less.

    Why would they do this? Simple. The earlier you get one of these new dollars, the more it is worth. Essentially, this is a form of taxation.

    Check out the writings of Murray Rothbard et al. mises.org has a ton of stuff available for free online.

     

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  7.  
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    Dani, Mar 20th, 2006 @ 9:08am

    Re: I don't get inflation period?

    "I mean, lets say we drop inflation, and everything is fixed in price as is today. Why should the fact that people get raises and pay increases cause the price of products to increase? Doesn't this mean that people will just buy more products thus making the companies selling these products richer?"

    It's not that simple...first, there's supply and demand. As we make more money, we are willing to spend more money. If a business sees that people are willing to pay more, why wouldn't they raise prices?

    Businesses are just like people as well. If your business is spending more (ie pay raises), the business must be making more to compensate or the owner is losing money. Sometimes this means a price increase.

    Think about it...if you make product z and then sell it to retailer for $5, who then sells to consumer for $10. If you give your employee a raise of $1 per z made, you have to raise your price to $6 or you make less money. The retailer then will raise their price as well, as long as the consumer's buying habits of product z stays the same at the higher price.

     

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  8.  
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    doubledoh, Mar 20th, 2006 @ 9:11am

    Mises.org

    Good idea...for a link to lots of Rothbard's work:

    http://www.mises.org/studyguide.aspx?action=author&Id=299

    And aside from Rothbard, there are hundreds of other brilliant works worth reading (or listening to) on that site.

     

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  9.  
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    Tom, Mar 20th, 2006 @ 9:13am

    Inflation data is a joke by RJD 3.6% rate of infla

    I couldn't agree more. I am not sure why this is not covered in greater detail. People in power/gov like to hide this from us so they can keep thier jobs...

     

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  10.  
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    Kiwi Fireball, Mar 20th, 2006 @ 9:18am

    Inflation

    Infaltion can happen because of any number of situations.

    For instance, Scarcity is one. If a rancher has to destroy 50% of his cattle due to mad cow disease, then it probably won't effec tthe ecnomy too much... but if every rancher in the US has to destroy 50% of their cattle due to the disease, then a scarcity occurs. Supply and demnd... yada yada.

    Another instance, Government fees and taxes. If the government raises or implements fees on all businesses of a certain type those businesses will have to charge more for their end product to make up the difference.

    Still another, Regulations. If a series of companies is only allowed (by the govt) to harvest so many trees for instance, this creates a scarcity of goods. In order to pay for the cost of operating, those costs are passed on to the price of the end product. In this case it's likely the companies could produce more but they are not allowed to.

    It's all pretty simple really. Any number of good articles can be found on the internet. Perhaps you should google something like "why does inflation happen?"

     

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  11.  
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    Comboman, Mar 20th, 2006 @ 9:26am

    Not all price changes are due to inflation

    New, bleeding-edge products are (and always have been) high priced. Obsolite products are (and always have been) low priced. If you wait long enough, they go up in price again and become collectables/antiques. All of this has nothing to do with short-term inflation which is what the RPI/CPI is supposed to be measuring.

     

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  12.  
    identicon
    Anonymous of Course, Mar 20th, 2006 @ 10:06am

    Re: Not all price changes are due to inflation

    The point is this, by dropping more mature technology
    from the list of products and adding leading edge stuff,
    the govenment takes advantage of the predictable price
    drop and claims lower inflation.

    This is why electronic devices, not housing and fuel
    are good items for the list.

    It's already been said, inflation due to printing money
    is a form of taxation. They make the money you hold
    worth less by printing more. Manipulation of the inflation
    statistics is no surprise, is it?

     

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  13.  
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    pooopstainzmcgraw, Mar 20th, 2006 @ 10:06am

    Re: Not all price changes are due to inflation

    Inflation is always looked at as a bad thing, realistically speaking inflation is good for the economy because gun running is good.

     

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  14.  
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    DerOosterricher, Mar 20th, 2006 @ 10:12am

    Re: Inflation

    Kiwi Fireball,

    Yes, those are types of inflation, but they are really just new equilibrium points reached due to changes in supply/demand. They are felt in the item in question.

    Monetary inflation is pervasive throughout the entire economy. Even in those tech products, although their shifting supply/demand curves far outstrip this process.

     

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  15.  
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    TriZz, Mar 20th, 2006 @ 11:08am

    My wallet hurts and I have to poop.

     

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  16.  
    identicon
    David J. Heinrich, Mar 20th, 2006 @ 11:56am

    modern Orwellian redefinition of "inflation"

    As classically used, inflation meant increases in the supply of bank notes not backed by additional reserves of money (gold). Translating that into today's terms -- since there is no backing for "bank notes", which have become the de-fact or fiat-money -- inflation is simply an increase in the supply of money.

    The entire focus on the CPI is nothing more than a redefinition of the word "inflation" that severely confuses cause and effect, and leads to all kinds of idiotic nonsense, like some of the arguments that there can be price-inflation caused by non-monetary causes. It is true that prices can rise due to non-monetary causes -- however, this is always in response to some natural market phenomena (like a market price-response to natural disasters).

     

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  17.  
    identicon
    Ben Robinson, Mar 20th, 2006 @ 12:50pm

    Inflation is not simply an increase in the money supply, it is an increase in the money supply that is not matched by an increase in production. I.E. There is more money around but the same anount of goods and services to spend it on, there fore the prices of those goods and services increases to match the amount of money there is to spend on them. If the money supply is increased by an amount equal to an increase in production then inflation does not occur. This is obviously an over simplification but it's basically how it works.

     

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  18.  
    identicon
    Bongoman, Mar 20th, 2006 @ 1:38pm

    CDs and Record Players

    I have DVD players, CD players (computer mounted and stand alone), a Thorens turntable, and even a couple of cassette players--and they all come in very handy. No doubt the double-density, blue laser, and eventual NanoTech terrabyte 1 inch disk will only enhance the collection.

     

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  19.  
    identicon
    David J. Heinrich, Mar 20th, 2006 @ 3:06pm

    inflation is an increase in the amount of fiat mon

    Ben,

    Sorry, but the classical and correct definition of the word inflation refers to expansionary monetary policies engaged in by States. You are confusing cause and effect.

    The effect of inflation is that prices will be higher than they otherwise would be. This actual effect does not occur uniformly, but is rather non-uniform.

     

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  20.  
    identicon
    Ben Robinson, Mar 21st, 2006 @ 9:56am

    The word "inflation" and the article in question almost always refer to price inflation. Therefore inflation is an effect and not a cause. Your definition of inflation is one only used by a few "old school" economists.

     

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  21.  
    identicon
    volatility, Mar 22nd, 2006 @ 7:59pm

    energy/food are abstracted from core inflation bec

    For fun, complete the following 101-level exercise that I assigned my class:

    Go to: http://www.bls.gov. Select “Consumer Price Index� under “Inflation and Consumer Spending.� Under “Get Detailed CPI Statistics,� select “Consumer Price Index-All Urban Consumers (Current Series)� and select the following variables: the overall CPI, overall CPI less food/beverage, food/beverage, housing, medical care, education, entertainment, transportation. When the table populates, select ‘More Formatting Options’ at the top; here, keep the table format, deselect original data value, select 12 months percent change, enter the date range 1998 to 2005, select all time periods, and select include graphs.

    A conclusion that can be drawn: energy and food are far more volatile than most other components of the CPI. Thus, when one speaks of 'core inflation,' they aren't discounting food/energy, they are simply defining what slice/dice they are looking at...the change in the full CPI basket, or the change in the more stable part of CPI (from which one can infer the current overall change in prices by adding the changes in food/energy) -- if one always spoke of the full measure, the documented swings would overstate the swings that we observe across the majority of the basket of goods -- in yet other words, only by looking at BOTH the full and the core series can one get a good idea of what's going on in the economy.

    (BTW -- to really get interesting, we could now add the seasonality dimension to the above.)

     

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  22.  
    identicon
    stephen pray, Mar 23rd, 2006 @ 2:25pm

    cost of living index

    screw cd players. my cost of living index is up $2.50 per fifth over last quarter.

     

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  23.  
    identicon
    chinadoll, Jan 22nd, 2009 @ 9:26am

    Re: Re: I don't get inflation period?

    As a business owner you actually don't have to raise your prices for your consumer if you give a raise to your employees. Most employees receive wage increases due to their performance for the company. If they perform well, bring in a certain revenue or some kind of profitability to the company, they are rewarded for their hard work. So, in effect, that employee helped the company bring in more revenue, so the company already has more money. They don't need to raise prices.

    Inflation happens because of the printing of money by the Federal Reserve with no backing whatsoever. Every dollar they print reduces the value of the dollar in your pocket. And they are printing billions of dollars, just out of thin air. Inflation is pretty much the thievery of the money we already have. People need to be more concerned about their purchasing power rather than the number of dollars in their bank account since the dollar can apparently be printed on the Federal Reserve's whim. Businesses raise prices because the dollar is worth less so in order to get the same value, they need more dollars. The more dollars that get pumped into the system will only lead to more inflated prices because companies will continue to raise their prices in order to get the same value.

     

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