Monday, April 23, 2012

BPP@MIT Inflation Is Lowest in Two Years at 2.2%

The Billion Prices Project @ MIT recently released daily online price index data through March 31, and annual inflation rates for the last two years are displayed in the chart above.  According to this real-time measure of major inflation trends in the U.S., inflationary pressures have been subsiding since last summer, and the annualized inflation rate of about 2.2% through the entire month of March (flat area in the graph) is at the lowest level in more than two years.  

Update: The chart below shows that over the last four years, MIT's online price index has tracked the CPI pretty closely.  Despite the fact that the online price index doesn't capture all of the items in the CPI, it's still a useful alternative measure of inflationary pressures in the U.S. economy that gives us additional information about the trends in consumer prices and inflation.



37 Comments:

At 4/23/2012 1:54 PM, Blogger morganovich said...

question:

why is this a relevant measure of anything resembling a consumer price level?

it all but ignores housing, food, healthcare, and energy. that's what, 60-70% of consumer spending?

sure, if we all lived in pc's and ate video consoles, this might be a relevant measure of the consumer experience, but as an unweighted index dominated by consumer electronics that ignores the majority of personal spending all but entirely, it's pretty difficult to see how this is a terribly relevant metric.

what is this index intended to show?

 
At 4/23/2012 2:07 PM, Blogger Moe said...

I do like the fact that it is a real-time model. Perhaps the BLS will be headed in this direction soon, as opposed to the rear-view mirror approach that has worked so well.

 
At 4/23/2012 2:16 PM, Blogger Moe said...

For more on BPP:

http://www.newyorker.com/talk/financial/2011/05/30/110530ta_talk_surowiecki

 
At 4/23/2012 2:17 PM, Blogger Ed R said...

Housing prices down about 30% over past 5 years; mortgage rates down about 40% over same period.

Consumer food down 11% over past 12 months.

Healthcare (personal service intensive)probably up, but do not have a number.

Energy: Oil-based up maybe 25% in last 12 months; however natural gas down at least 30%, and coal down maybe 15%.

What inflation???

 
At 4/23/2012 3:01 PM, Blogger Benjamin said...

We are moving into a Japan-lite situation.

The threat now is deflation and recession.

There is an easy fix to this: balance the federal budget and print a lot of money.

The Chicken Inflation Littles have been in hysterics for a years; we are deep into Zimbabwe territory years ago. Any minute now, get ready for Weimar Republic.

Well, except that many prices are falling. And unit labor costs are flat to down. Housing is cheaper than ever.

Except for that, it is runaway inflation baby.

 
At 4/23/2012 3:41 PM, Blogger PeakTrader said...

Paul Krugman on the BPP:

2011

"What you should know is that the BPP numbers don’t exactly measure the same things as the CPI — in particular, no services.

So you wouldn’t expect identical numbers. But they don’t look all that different, especially if you focus on longer stretches, not month by month.

Over the period covered by the BPP, the overall CPI has risen at an annual rate of 0.75 percent, while the BPP has risen at an annual rate of 1.22 percent.

Those who insist that the inflation numbers are all cooked, and that we’re really seeing very high inflation, must believe that the MIT guys are in on the plot.

2012

For some reason I seem to be seeing a resurgence of inflation scare stories, despite the fact that — gas prices aside — inflation remains quiescent. And along with the scare stories come assertions that the inflation numbers are faked, that the government is hiding the true rate.

So it’s time for another look at the Billion Prices Project, which uses internet price quotes to create an inflation measure completely independent of government agencies.

It’s not a perfect match for the CPI, nor should it be. But the BPP index is just as quiescent as the official number.

Of course, maybe they’re part of the conspiracy.

 
At 4/23/2012 3:59 PM, Blogger Larry G said...

just what Bernanke wanted to hear for QE3, eh?

:-)

 
At 4/23/2012 4:15 PM, Blogger morganovich said...

ed-

where are you getting that wildly inaccurate data?

housing prices are MUCH more complex than that. rents have soared, the number of renters has gone up, down payment requirements have soared and home equity in existing homes had plummeting.

saying prices dropped 30% is a massive oversimplification.

if your home equity went to zero, coming up with a 20% downpayment is harder, not easier than it was.

food down in the last 12 months? um, no. not even close. even the CPI which is adjusted to hide inflation is showing big jumps in food costs. look it up.

food at home is one of the biggest sources of consumer inflation at the moment (after energy).

energy as a whole is well up in the last 12 months even using the ludicrous bls methodology.

http://www.bls.gov/news.release/cpi.nr0.htm

you really ought to look at the basic data before claiming "what inflation".

even when you weight it all away, you are still seeing big jumps.

and BPP does not actually track cpi very well.

look at the last 12 months. the variance is nearly 50%. peak, if you think that's accurate tracking, no wonder you believe cpi.

the fact is that actual inflation remains very high, like 1970's high. the underlying prices are moving like they did then, it's just that now, instead of calling it 9% we call it 3%.

the bls has done everyhting in it's power to hide inflation. but this is just setting your scale back 20 pound and pretending you lost weight. it will not get you into your old pants.

 
At 4/23/2012 4:20 PM, Blogger morganovich said...

so, let's assume for a moment that the statement that bpp and cpi tend to be the same over extended periods is true.

that is not a sign that cpi is correct. it's a sign that cpi is massively broken.

the bpp is a tech heavy index that is unweighted and that we know ignores the big sources of inflation like energy and healthcare (and lately, food).

so given that we know it ignores the big inflation sources and instead uses only the most competitive prices in the world, internet prices, and for mostly the most price deflationary products in the world, consumer electronics, we should expect it to greatly underestimate the actual consumer basket when we add in energy, healthcare, food, etc.

if it does not, then somehting (likely the CPI) is badly broken.

these 2 indexes should not look like each other. the bpp ought to be much lower than cpi if you look at what they are made of.

if the 2 indexes converge, then that is pretty much proof that cpi is badly understating inflation.

 
At 4/23/2012 4:44 PM, Blogger PeakTrader said...

Whether people believe the CPI or BPP is overstated or understated is meaningless, because there's no proof of any bias, one way or the other.

So, the rate of change, e.g. annually or monthly, is most important.

 
At 4/23/2012 6:21 PM, Blogger rjs said...

doug short has the best breakout of CPI inflation in charts on the web; here's one of his 4 monthly posts: http://advisorperspectives.com/dshort/updates/CPI-Category-Overview.php

you see its mostly medical & tuition...
the caveat with that is that it is BLS data, which is gathered using archaic methods...but they're better than the census dept econ reports, which are done by mail survey...not email survey, mail survey, as in postage stamps...

 
At 4/23/2012 6:50 PM, Blogger Ed R said...

Retail FOOD: Change Feb. 2011-Feb.
2012 (Source; BLS)


Lettuce -30.1%
Cabbage -26.7%
Tomatoes -21.8%
Broccoli -18.9%
Strawberries -15.6%
Oranges -13.9%
Peppers -12.3%
Bologna -11.8%
Lemons -11.1%
Potatoes, Froz -7.7%
Pears -6.3%
Butter -5.5%
Grapes -4.1%
Rice -3.9%
Bananas -3.5%
Round Roast -3.4%
Chicken Breast -2.2%
Apples -2.2%
Ham -0.8%
Grapefruit -0.5%

 
At 4/23/2012 7:53 PM, Blogger NormanB said...

20 year Treasury minus 20 year TIP is 2.75% - 0.59% for a projected 20 year (!!) CPI of 2.16%. MIT: You ain't got nothing on 'the market'.

 
At 4/23/2012 7:53 PM, Blogger NormanB said...

20 year Treasury minus 20 year TIP is 2.75% - 0.59% for a projected 20 year (!!) CPI of 2.16%. MIT: You ain't got nothing on 'the market'.

 
At 4/23/2012 7:54 PM, Blogger PeakTrader said...

It's likely, demand for the categories "Medical Care" and "Education and Communication" increased, although their prices increased more than other prices.

The actual price of medical care is reflected by insurance & co-payments.

The actual price of education is offset by grants and scholarships (also, I knew a stranded foreign student who received a tuition waiver).

 
At 4/23/2012 8:05 PM, Blogger Ed R said...

Further research shows the price of natural gas down about 50% in past 12 months and price of coal down also about 50% in past 12 months.

What energy inflation??

 
At 4/23/2012 8:50 PM, Blogger bart said...

PT said: Whether people believe the CPI or BPP is overstated or understated is meaningless, because there's no proof of any bias, one way or the other.

I and others have directly addressed the severe shortcomings in the BPP multiple times, but no one has the guts to directly address those facts.

And Of course there's no proof for those who won't look at facts or quote completely wrong (or cherry picked data Ed) about inflation or the CPI.

Per the BLS itself, food is up a bit over 4% (excluding substitution bias, hedonics and the lack of reverse hedonics)

Apparel is up about 4.5% during the last year.

Energy is up 6% during the last year.

Water, sewer & trash is up 4.8% during the last year

Health insurance is up over 11% the last year.



The lying overall CPI itself is up 2.7%.

Anyone can find those facts by simple looking & viewing simple raw (lying) BLS data.

As usual, no one will dare directly address the above or below, especially what happens to the purchasing power of seniors living only on SS for years.


And on top of that, medical share of CPI is 7.1%, medical share of GDP is 17.2%. The gap between the two has been widening since the mid 60s, when the percentages actually matched.

And here's the chart proof:

http://www.nowandfutures.com/images/medical_costs_gdp_vs_cpi_share.png



The religion of believing 100% everything the BLS tells you is alive & well.

 
At 4/23/2012 8:56 PM, Blogger bart said...

Real inflation (per my work which shows lower inflation than John Williams at shadowstats.com) is running at about 8.3%... and at an annualized rate of over 12%.

Where's the deflation? ;-)

 
At 4/23/2012 8:58 PM, Blogger bart said...

PT said: The actual price of education is offset by grants and scholarships (also, I knew a stranded foreign student who received a tuition waiver).


OMG... so if someone else pays for education besides oneself or family, that means there's no education inflation?!?!

Do you honestly believe that?

 
At 4/23/2012 9:00 PM, Blogger bart said...

And then we have the Dr. Perry article "Median Florida Home Prices Increased by 10% in March from a Year Ago, Condo Prices Gain 21% "


Where's the deflation? ;-)

 
At 4/24/2012 6:53 AM, Blogger PeakTrader said...

Bart, if the price of tuition is raised 10% and students actually pay 5% more, tuition inflation is 5%, not 10%.

Also, you're confusing prices of goods & services with asset prices, debt, and wealth.

The price increase of tuition is reduced by increased debt (e.g. government debt that will never be paid-down) or reduced wealth (accumulated in the private sector), along with discounts (e.g. tuition waivers).

Moreover, your statement "medical share of CPI is 7.1%, medical share of GDP is 17.2%" represents two different categories.

GDP represents output or income, consumption is a subcomponent of GDP, and actual U.S. household or consumer spending on medical care is smaller than total spending in the U.S. health care industry.

 
At 4/24/2012 7:29 AM, Blogger bart said...

PT, if the price of tuition is raised 10% and students actually pay 5% more, tuition inflation is 10%, not 5%.

If a price goes up 10% and I pay 5% and some other person or group pays 5%, the price and inflation has still gone up 10% for that item. Just because someone else pays that other 5% doesn't mean that in any way, shape or form that it isn't a price increase or real inflation.

That other person or group's expenses have just gone up that 5% amount. It's hidden, much like the practice of hedonics hides real price increases.

And I don't care and it doesn't matter if its a good or service, the price still went up 10%.





Of course CPI is not the same as GDP, but if you can't see that medical CPI has not gone up as much as medical GDP with that simple chart with the huge and growing gap between them - all I can say is wow, and that you must think that corporations really are people and use medical services directly like a real human does.

Medical costs as a share of total GDP has gone from 7% to 17%, with a growing GDP - i.e., lots more money is being spent on medical since the 60s. It has not been reflected in the medical component of CPI, which has only gone from about 5% to 7%, also known as a huge bias and incorrect.

The GDP share of medical in dollars has gone up about 140%, the CPI share is only up about 40%.

You apparently can't or are not willing to see that not counting all human consumer spending on medical care as actual medical care in CPI is bogus (real humans or animals are the only items that are the final consumer of medical care), *especially* when it was fully counted in the 60s.

 
At 4/24/2012 8:32 AM, Blogger PeakTrader said...

Bart, obviously, you don't understand what the CPI measures.

"The consumer price index (CPI) measures changes in the price level of consumer goods and services purchased by households."

Also, the CPI is a proxy for the general price level. Medical care is only part of the CPI.

 
At 4/24/2012 9:00 AM, Blogger PeakTrader said...

Also, the CPI is most likely overstated, based on many econometric studies, because appropriate adjustments have been too slow and too small:

Sources of Bias and Solutions to Bias in the CPI
National Bureau of Economic Research
Jerry A. Hausman, MIT

Four sources of bias in the Consumer Prices Index (CPI) have been identified.

The most discussed is substitution bias, which creates a second order bias in the CPI.

Three other changes besides price changes create first order effects on a correctly measured cost of living index (COLI).

Introduction of new goods creates a first order effect of new good bias.

Quality changes in existing goods will lead to quality bias, which has first order effects.

Shifts in shopping patterns to lower priced stores can create first order outlet bias.

I explain in this paper that a pure price based approach of surveying prices to estimate a COLI cannot succeed in solving the problems of first order bias.

Using data from 1972-1994 Costa finds that cumulate CPI bias during this period was 38.4% with an annual bias of 1.6% per year.

Hamilton (2001) also estimates CPI bias to be 1.6% per year during this period, using a similar econometric approach on a different data set.

This sizeable estimate of bias demonstrates how the BLS procedure overestimates the COLI.

The actual bias would be even greater if the effect of new goods bias and quality change bias were included.

A recent estimate of quality growth by Bils and Klenow (2001) finds a significant estimate of quality bias over the period 1980-1996.

They estimate that the BLS understated quality improvement and overstated inflation by 2.2% per year on products that constituted over 80% of US spending on consumer durables.

These more aggregate studies along with my (and other) micro studies on particular goods demonstrate that CPI bias is likely to be substantial.

 
At 4/24/2012 9:17 AM, Blogger PeakTrader said...

Moreover, I may add, you're using the entire U.S. health care industry as a percentage of U.S. GDP.

It should be noted, in the past 30 years or so, there are more industries in the U.S. and some industries became quite large, which suggest real GDP growth (in nominal GDP growth or subtracting inflation) has been strong.

 
At 4/24/2012 9:24 AM, Blogger bart said...

PT said: Also, the CPI is most likely overstated, based on many econometric studies, because appropriate adjustments have been too slow and too small:

All 100% bogus since it completely ignores the simple facts about seniors on SS continually losing purchasing power.

You don't have a clue about simple debate and facts.

 
At 4/24/2012 9:32 AM, Blogger bart said...

PT said: Moreover, I may add, you're using the entire U.S. health care industry as a percentage of U.S. GDP.

I notice, yet again and as usual, simple facts like humans & animals are the only items that use medical care and that the gap has kept growing since the 60s.



PT said: These more aggregate studies along with my (and other) micro studies on particular goods demonstrate that CPI bias is likely to be substantial.

At least you got that right.

Just reverse the sign once you read the huge amount of studies on the other side. Google is your friend.

And oh, check out the CPI-RS series and ponder why all the "wonderful BLS changes since 1982" made virtually zero difference in CPI, when things like hedonics and substitution actually exist and pretend that beef=chicken=tripe... and how the BLS implicitly admits per CPI-RS vs. CPI-U that they haven't done anything in 30 years.

 
At 4/24/2012 9:38 AM, Blogger bart said...

PT said: Quality changes in existing goods will lead to quality bias, which has first order effects.


Now address why reverse hedonics and reverse substitution bias are nowhere to be found in ANY of those studies or in any commentary from the BLS.... or don't and clearly show your own bias and inability to deal with simple facts.

A wood table is not the same as a particle board one with plastic veneer, and chicken is not the same as beef, etc.

 
At 4/24/2012 9:43 AM, Blogger bart said...

PT said: Using data from 1972-1994 Costa finds that cumulate CPI bias during this period was 38.4% with an annual bias of 1.6% per year.


1972-1994 eh? - very convenient time period, since most of the lies in CPI started in 1999, with the major exception of medical.




The real differences since 1982:

Bogus CPI-U 2.4x
CPI w/o lies 5.8x
SGS-CPI 8.7x

 
At 4/24/2012 10:00 AM, Blogger PeakTrader said...

Bart says: "reverse hedonics and reverse substitution bias are nowhere to be found in ANY of those studies or in any commentary from the BLS."

Common Misconceptions about the Consumer Price Index
BLS

Critics often incorrectly assume that BLS only adjusts for quality increases, not for decreases, and that hedonic adjustments have a large downward impact on the CPI.

On the contrary, BLS has used hedonic models in the CPI shelter and apparel components for roughly two decades, and on average hedonic adjustments usually increase the rate of change of those indexes.

Since 1998, hedonic models have been introduced in several other components, mostly consumer durables such as personal computers and televisions, but these newer areas have a combined weight of only about one percent in the CPI.

 
At 4/24/2012 10:15 AM, Blogger bart said...

Common Misconceptions about the Consumer Price Index

Bull - where's the actual link(s) to the reverse hedonic models and data and methodology? Hint: there are none.


What about all the other problems and lies that I've proven, especially about SS recipients and purchasing power, CPI-RS, medical share changes, etc. etc. etc.

 
At 4/24/2012 11:11 AM, Blogger PeakTrader said...

Bart, you can find the methods and data. However, it unnecessary, because everything fits together.

For example, 8% inflation doesn't fit with other economic variables, but 2% inflation doesn't contradict them.

CPI conspiracy theories persist no matter what data are reported
April 22, 2012

The BLS provided details on its methodology because the “myths” about the CPI construction methods “continue to circulate,” BLS economists John Greenlees and Robert McClelland said in an August 2008 rebuttal.

Williams holds a bachelor’s in economics and a master’s in business administration from Dartmouth College. His website says he worked as a consulting economist.

Williams’s alternate measure of inflation was 10.3 percent for the 12 months through March, compared with 2.7 percent for the Consumer Price Index.

His assessment of gross domestic product has clocked negative economic performance in every quarter since 2005.

Williams sells subscriptions to his website for $175 a year. He declined to give the number of subscribers. “My business has been picking up over the years,” he said.

Independently of Williams, two economists at the Massachusetts Institute of Technology developed their own methodology.

Roberto Rigobon and Alberto Cavallo launched the Billion Prices Project in 2010.

“In a three-to-four month window, the inflation rate we report is almost identical to the CPI,” Rigobon said. That suggests that the CPI measure is accurate, he said.

“At BLS, we’re just dealing with the data, not the policies behind the data,” said Gary Steinberg, a press officer and more than 20-year veteran of the bureau. “We don’t have an opinion one way or the other on how the data are used.”

On average, the hedonic quality adjustment has increased, not decreased, the reported rate of inflation, the BLS says.

 
At 4/24/2012 11:51 AM, Blogger bart said...

Bart, you can find the methods and data. However, it unnecessary, because everything fits together.

bart: Nothing but allegations, and indeed almost an admission that it doesn't exist

For example, 8% inflation doesn't fit with other economic variables, but 2% inflation doesn't contradict them.

bart: Nothing but unproven assertions and allegations that don't address any of the facts, etc. that I've presented

CPI conspiracy theories persist no matter what data are reported

bart: Nothing but unproven assertions and allegations that don't address any of the facts, etc. that I've presented


The BLS provided details on its methodology because the “myths” about the CPI construction methods “continue to circulate,” BLS economists John Greenlees and Robert McClelland said in an August 2008 rebuttal.

bart: Nothing but unproven assertions and allegations.

Interesting that you can't and won't even look at the CPI-RS, which proves you're incorrect



Williams holds a bachelor’s in economics and a master’s in business administration from Dartmouth College. His website says he worked as a consulting economist.

Williams’s alternate measure of inflation was 10.3 percent for the 12 months through March, compared with 2.7 percent for the Consumer Price Index.

His assessment of gross domestic product has clocked negative economic performance in every quarter since 2005.

Williams sells subscriptions to his website for $175 a year. He declined to give the number of subscribers. “My business has been picking up over the years,” he said.

bart: Yes, all true



Independently of Williams, two economists at the Massachusetts Institute of Technology developed their own methodology.

Roberto Rigobon and Alberto Cavallo launched the Billion Prices Project in 2010.

“In a three-to-four month window, the inflation rate we report is almost identical to the CPI,” Rigobon said. That suggests that the CPI measure is accurate, he said.

bart: Horse puckey, and nothing but more assertions and allegations - and yet again and as usual, a complete failure to address all the probelms with the BPP that I and others have cited

“At BLS, we’re just dealing with the data, not the policies behind the data,” said Gary Steinberg, a press officer and more than 20-year veteran of the bureau. “We don’t have an opinion one way or the other on how the data are used.”

bart: Yes, and press officers always tell the truth (ever heard of vested interests?), and the government always tells the truth like about the Pueblo and Pentagon Papers... and the CPI

On average, the hedonic quality adjustment has increased, not decreased, the reported rate of inflation, the BLS says.

bart: Nothing but allegations and assertions.



It's still fascinating how you continually avoid how purchasing power of seniors on SS declines year after year

 
At 4/24/2012 4:10 PM, Blogger VangelV said...

why is this a relevant measure of anything resembling a consumer price level?

It isn't. The true inflation rate is closer to 10%.

 
At 4/24/2012 4:50 PM, Blogger PeakTrader said...

According to Bart and VangelV, U.S. workers must be the dumbest people in the world, because they demand only 3% wage increases each year when inflation is 10% per year.

Maybe, U.S. workers feel guilty, because they're the most destructive workers in the world, shrinking real GDP 7% each year.

 
At 4/24/2012 5:49 PM, Blogger bart said...

Ah yes. As expected PT returns to type - again.

He has no virtually facts or links or logic, can't deal with questions about CPI-RS or seniors on SS purchasing power etc., so goes into personal attack mode - thereby (again and as usual) implicitly admitting that's he massively incorrect and uninformed about the lying BLS CPI.

He may even believe the bogus GDP deflator (used to adjust nominal to real GDP) since its substantially lower than CPI, and apparently and erroniously believes that the only country in the world that misstates CPI as too low is the U.S.

Sad...

 
At 4/24/2012 7:41 PM, Blogger VangelV said...

According to Bart and VangelV, U.S. workers must be the dumbest people in the world, because they demand only 3% wage increases each year when inflation is 10% per year.

Actually, they are losing out as high wage jobs are lost and more and more are of the low wage and temp variety. When it comes to getting a clearer picture I would rather trust Trimtabs, Shadow Stats, or Marc Faber than the BLS.

 

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