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.

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  1. identicon
    volatility, 22 Mar 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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