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📉 Why the CPI is a Poor Measure of Inflation 🛒

The CPI is flawed because its basket of goods and services is highly manipulable:

• If a product gets too expensive (e.g., beef), it’s replaced with a cheaper alternative (e.g., chicken), hiding the real loss of purchasing power.

• Key expenses like housing, education, and healthcare are often underrepresented or poorly accounted for.

• Hedonic adjustments: If a product “improves” (e.g., better features), they downplay the price increase, even though you’re paying more.

Inflation is not a single number—it’s a vector, as different goods and services rise at different rates, impacting individuals unequally.

By underestimating real inflation, the CPI benefits governments while hurting those who rely on wages or pensions tied to it.

#Inflation #Economics #Bitcoin

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Discussion

Dhay 🏴‍☠️ 1y ago

As someone outside of economics, the idea of inflation seem to be some kind of abstraction between price increase and expansion of monetary base, aka the symptom and its main cause.

In the short to medium term, there's also fluctuations in demand and supply that impact the prices. And in the long term, technological and entrepreneurs optimizations can drive the prices down.

There's also shrinkflation and products getting progressively worse quality which is incredibly annoying.

I guess it's impossible to have a single metric that tells the whole story.

choyles 1y ago

CPI is a poor measure of inflation due to the fact that the ones responsible for the inflation are the ones choosing and manipulating the basket of goods chosen to represent the inflation.