Can you quantify inflation?

[BlackHatCoiner]

Inflation is the general increase in the prices of goods and services within a given time. However, how general is this? You've probably come across terms such as "real inflation" or the "CPI". The latter, which stands for Consumer Price Index, is announced statistics made by the government, which measures inflation based on a basket of goods.

But, it is constantly confirmed that the CPI does not reflect on the real inflation, as the basket of goods and services is biased. For example, the government can choose goods A, B and C, which only experienced a 3% increase in price, for its basket, while the goods D, F, G experienced 10% inflation.

But, then again, even if you count all goods and services in an economy, how useful would that metric be? If we counted D, F and G, and those six were the only goods in the economy, we'd have a 6.5% inflation rate. (The average of 3 and 10). But human action comes into the equation, and things get messy. For example, if Alice depends on goods D, F and G, while Charlie only wants A, B and C, then inflation clearly influences Alice more than it does Charlie.

This raises the issue of whether it is possible to measure / quantify inflation. What do you think? The Austrian school might have the answer, but I'd rather see what you think about inflation, and is it meaningful to try and measure it? Or, how meaningful is it?

[Poker Player]

I opened a similar thread some time ago, and it is that there is a difference between currency debasement and inflation, which is the same as you say, between inflation (manipulated by the government) and real inflation.

Currency debasement is what is printed and inflation is the result of the calculation of price changes in a basket of products and services. What happens is that the currency debasement or real inflation is always higher than the official one, and it is because much of the printed money goes to things that are not in the basket, such as financial assets, for example Bitcoin.

The way to quantify it is to see what has been printed, the amount of money supply that has increased in a year.

[cryptosize]

Typical example of:

https://en.wikipedia.org/wiki/Lies,_damned_lies,_and_statistics

[NeuroticFish]

But, then again, even if you count all goods and services in an economy, how useful would that metric be?

It's useless. They keep going around to make the numbers look good. And for the average Joe that 3% and 6.5% are small, many don't understand it well that those tiny numbers keep adding up year by year.

This raises the issue of whether it is possible to measure / quantify inflation. What do you think? The Austrian school might have the answer, but I'd rather see what you think about inflation, and is it meaningful to try and measure it? Or, how meaningful is it?

As it is now, it's pretty much meaningless.
Imho something fixed should be used as an unit of measure, like for everything else (maybe like the good old international prototype of kg was). But what?

Price of a bread, a house or even gold depends on other factors too, not only inflation.
The overall income also rises based on people's knowledge, skills and use of machinery (or even AI).
However a fixed "product" price evolution in time and a fixed "income" evolution in time should be shown. These should depict inflation. They would show how much somebody's income gets diluted and also what a big mess is to keep money in a bank.

Sadly, I don't know what those fixed "product" and "income" would be, so... 

[Findingnemo]

The standard way of quantifying the inflation is measuring the gold price which is not accurate though but it's somewhat close to perfect we have, we can identify the real inflation by calculating the value of gold this year and 12 months exactly before and see how much these government lie to us in the name of official report.

They don't even use the word inflation as much cause people are being aware of those terms before so they go more technical terms that people who use money will have no idea of what's happening.

[Synchronice]

This raises the issue of whether it is possible to measure / quantify inflation. What do you think? The Austrian school might have the answer, but I'd rather see what you think about inflation, and is it meaningful to try and measure it? Or, how meaningful is it?

It's an irony when governments calculate the inflation, isn't it? They set salaries, increase it according to inflation, get subsidized meals, private driver with very expensive car, free fuel, expensive hotels for free, free flights and many other benefits. Life is amazing when you get high salary and are inflation resistant. Yes, it's irony when they calculate our inflation rate and I get so angry about that.

It's very possible to measure inflation for an average person. We have to keep in mind that each product costs different price in different market. It's cheap somewhere but expensive in another place. We have to sum it up and divide and that will be the average price. Sometimes person will buy in cheap supermarket and sometimes they'll be forced to buy in expensive, so we balance the price via this method. For example, my favorite Amarula Fruit Cream-Liqueur 0.7L costs 10 Euro in Netto but costs 14.5 Euro in Edeka. Average price = 12.25 Euro. If it rises by 10% in Netto and by 20% in Edeka, then average inflation for me will be 16%.
If you were spending 300 euro on food before and now you pay 350 euro for exactly the same food every month, then you have 17% inflation in food alone. If you were paying 80 Euro in transport and now it costs 100 euro, you got 25% inflation here, if you were paying 400 euro in rent and now the landlord demands 600 euro from you, you have 50% inflation here (that's a real true story from my friend). And so on...


There should be every best selling product's before and after prices included in the calculation of inflation but let's be honest, no one is going to write down the real inflation rate because the governments don't want to put out big numbers in front of our faces. If you tell the French population that real inflation is 20% instead of 5.9%, what do you think what's gonna happen?
By the way, a rich politician won't even be able to calculate the inflation because they don't get affected by it They don't know what inflation is

[Fortify]

Inflation is the general increase in the prices of goods and services within a given time. However, how general is this? You've probably come across terms such as "real inflation" or the "CPI". The latter, which stands for Consumer Price Index, is announced statistics made by the government, which measures inflation based on a basket of goods.

But, it is constantly confirmed that the CPI does not reflect on the real inflation, as the basket of goods and services is biased. For example, the government can choose goods A, B and C, which only experienced a 3% increase in price, for its basket, while the goods D, F, G experienced 10% inflation.

But, then again, even if you count all goods and services in an economy, how useful would that metric be? If we counted D, F and G, and those six were the only goods in the economy, we'd have a 6.5% inflation rate. (The average of 3 and 10). But human action comes into the equation, and things get messy. For example, if Alice depends on goods D, F and G, while Charlie only wants A, B and C, then inflation clearly influences Alice more than it does Charlie.

This raises the issue of whether it is possible to measure / quantify inflation. What do you think? The Austrian school might have the answer, but I'd rather see what you think about inflation, and is it meaningful to try and measure it? Or, how meaningful is it?

These attempts at measuring inflation are not meant to be absolute, because it's impossible to track the prices of all goods and services all of the time, at least with the tools currently available to us. These metrics are intended to be a rough measure, using a basket of representative products, that is constantly tweaked over time. As long as the statistics gathering agency does a reasonable job at keeping the products in the basket meaningful - that they relate to current consumer trends or the average shopping habits - then it can be a useful gauge of changes over time. It is intended to track the most popular or common items at a certain time, which is the best that we can expect right now.

[BlackHatCoiner]

The way to quantify it is to see what has been printed, the amount of money supply that has increased in a year.

Indeed. That's the most accurate approximation, in my opinion. But inflation is more complex than that. I think that, money supply plays the biggest role, but the government can influence with taxes and subsidies, as well. So, it'd still be false to rigorously treat money printing as the only variable of the complex equation that is inflation.

Imho something fixed should be used as an unit of measure, like for everything else (maybe like the good old international prototype of kg was). But what?

I believe the fundamental flaw lies in trying to quantify inflation. The reason is that there are simply too many variables to account for. In fields like physics or chemistry, quantification works because complex information can be simplified into equations. However, economics is not an exact science where you can conduct experiments or verify outcomes in the same way.

As I have made clear, even if we assume that we know everything about the economy, inflation remains a questionable metric of value. This is because I might rely on goods and services that have increased in price far more than the average. If inflation isn't a useful measure on an individual level, perhaps it holds more value collectively-- such as when assessing the average prosperity of a population. However, certain products are simply more essential and have inelastic demand compared to others. How can your equation account for this?

For example, olive oil may represent a relatively small portion of the market, but it is essential for most people. Even if every other good in the economy experiences 0% inflation, a 300% rise in the price of olive oil would barely impact overall inflation, yet it would be deeply felt by the majority of people.

If you think about it, every metric in economics carries a significant degree of unreliability on how accurately it represents what it presumably measures; inflation, minimum wage, unemployment rate, gross domestic product, consumer price index, interest rates, tax rates. Every measure is the result of humans trying to quantify the economy. This overconfidence, coupled with a lack of humility in believing we can fully understand and predict human behavior, is undoubtedly, in my view, why these metrics are inherently flawed and fallible.

[Apocollapse]

I think inflation rate in basket of goods and services already represent the actual thing, like medical inflation, education inflation, foods inflation, housing inflation etc. But I wish the statistic they got after counting all the items instead of only few items.

Like foods inflation, I expect they've check chicken, egg, rice, flour, cookie, cake, vegetable, bread etc inflations, instead of only pick chicken, egg and rice inflations then claim to be whole foods inflation.

If you think about it, every metric in economics carries a significant degree of unreliability on how accurately it represents what it presumably measures; inflation, minimum wage, unemployment rate, gross domestic product, consumer price index, interest rates, tax rates. Every measure is the result of humans trying to quantify the economy. This overconfidence, coupled with a lack of humility in believing we can fully understand and predict human behavior, is undoubtedly, in my view, why these metrics are inherently flawed and fallible.

The government want to make their citizen fear.

High unemployment rate, high inflation rate, minimum rate etc all of them enforce people to stay in their current jobs, as long as they get paid with minimum rate, they're better than unemployed. They make the employees to not out by telling there are many people are still looking for a job.

[Yatsan]

Inflation is the general increase in the prices of goods and services within a given time. However, how general is this? You've probably come across terms such as "real inflation" or the "CPI". The latter, which stands for Consumer Price Index, is announced statistics made by the government, which measures inflation based on a basket of goods.

But, it is constantly confirmed that the CPI does not reflect on the real inflation, as the basket of goods and services is biased. For example, the government can choose goods A, B and C, which only experienced a 3% increase in price, for its basket, while the goods D, F, G experienced 10% inflation.

But, then again, even if you count all goods and services in an economy, how useful would that metric be? If we counted D, F and G, and those six were the only goods in the economy, we'd have a 6.5% inflation rate. (The average of 3 and 10). But human action comes into the equation, and things get messy. For example, if Alice depends on goods D, F and G, while Charlie only wants A, B and C, then inflation clearly influences Alice more than it does Charlie.

This raises the issue of whether it is possible to measure / quantify inflation. What do you think? The Austrian school might have the answer, but I'd rather see what you think about inflation, and is it meaningful to try and measure it? Or, how meaningful is it?

The inflation rate is the rate of change of the price of goods and services over time. It can be measured by using the Consumer Price Index, which tracks the different prices of goods and services. The limitation, however, of using CPI as a basis is that its basis may not reflect the diversity of individual consumption patterns. It assumes that the consumers do not change their spending behavior because of changes in price. (controlling for the effect of other variables) and shocks A person's private experience with money may be adjusted. This means that the CPI is a poor measure of personal money experience. The type of people Recessions are perceived in different ways based on spending behaviors. People who rely much on high-priced goods will be most affected. According to the Austrian School of Economics, one does not have enough items of inflation in order to cope with the crisis, like CPI. It just focuses on the position which the currency takes and its perceived value. Even considering such limitations, the importance of measuring inflation comes into view for policymaking. This technique will be utilized in economical planning and comparative analysis. These provide a general insight into the processes in an economy. It is necessary to use other measures besides estimating the impact of the recession, and at the same time appreciate the limitations of such measures To completely understand the impact brought about by the recession.

I think inflation rate in basket of goods and services already represent the actual thing, like medical inflation, education inflation, foods inflation, housing inflation etc. But I wish the statistic they got after counting all the items instead of only few items.

Like foods inflation, I expect they've check chicken, egg, rice, flour, cookie, cake, vegetable, bread etc inflations, instead of only pick chicken, egg and rice inflations then claim to be whole foods inflation.

If you think about it, every metric in economics carries a significant degree of unreliability on how accurately it represents what it presumably measures; inflation, minimum wage, unemployment rate, gross domestic product, consumer price index, interest rates, tax rates. Every measure is the result of humans trying to quantify the economy. This overconfidence, coupled with a lack of humility in believing we can fully understand and predict human behavior, is undoubtedly, in my view, why these metrics are inherently flawed and fallible.

The government want to make their citizen fear.

High unemployment rate, high inflation rate, minimum rate etc all of them enforce people to stay in their current jobs, as long as they get paid with minimum rate, they're better than unemployed. They make the employees to not out by telling there are many people are still looking for a job.

Valid yes on how inflation is taken as a group and I think the need for a holistic approach in order to closely match the real inflation what the consumer faces. The CPI and other measures of wealth Aim to include many categories like health, education, food, and housing. But Normally, only selected items appear in each of these categories. This approach may lead to a mismatch between the reported inflation rate versus the actual rate of inflation faced by the contracting parties.
You noted: Estimates of food inflation will include chicken, eggs, and rice but probably not go up much, which would indicate the directions of, for example, flour, cookies, or vegetables. In fact, the model here proposed might not mirror the actual price pressures of consumers buying a long list of food products. So, in this regard, though these estimates are an indicator of the impact of the recession on personal budgets, it may not well capture the effects of it.

Multivariate approach to inflation measurement. Other factors considered under each category It can capture the real stimulus of inflation. But it poses difficult problems in data collection and analysis. Therefore, consumers and policymakers must be highly aware of these limitations. other information and personal experiences are brought into the consideration when measuring the true setback of the recession.

[crwth]

I believe people who quantify it are doing as much as they can to provide relevant data. However, to understand and see the accurate results that they could get, it’s possible that they do not have enough data from everyone. This is where international standards come in because they would give them, and if not everyone follows that standard, there may be inconsistencies.

You can quantify it. You need a large amount of data.

[Reatim]

But human action comes into the equation, and things get messy. For example, if Alice depends on goods D, F and G, while Charlie only wants A, B and C, then inflation clearly influences Alice more than it does Charlie.

Inflation is felt differently by different kinds of people. In a country, inflation rate might differ by region to region due to consumption behavior, supply, and demographic. Statistical measurements used by the government to assess national inflation might not be the most accurate due to different regions’ experiences with inflation. All statistical measurements allow for some margin of error. You can’t always expect a 100% accuracy due to many factors involved even if we are talking about quantitative data.

This raises the issue of whether it is possible to measure / quantify inflation. What do you think? The Austrian school might have the answer, but I'd rather see what you think about inflation, and is it meaningful to try and measure it? Or, how meaningful is it?

Using just one statistical method to quantify inflation would never be enough because while it gives you a picture, it only gives you a part of it and not the whole picture. In concepts as complex as inflation, it’s essential to use different statistical measurements to analyze the whole picture and understand inflation in a much deeper and more accurate way. In research, both quantitative and qualitative methods can be used to come to a conclusion so we can say the same thing with trying to understand or measure inflation.

Aside from CPI, there are also other ways to measure inflation such as: Personal Consumption Expenditures (PCE), Producer Price Index (PPI), and many more. Different statistical methods tell us different things that if we combine all of them, we would be able to get a better understanding of how inflation is in a country. Yes it will not be 100% accurate but it is enough data to make conclusions that will be useful for the government.

[m2017]

Inflation is the general increase in the prices of goods and services within a given time.

This is a little bit wrong. Inflation is a decrease in the purchasing power of money due to an increase in its amount in the total turnover of the world economy. That is, for each dollar you can buy fewer goods and services than before. Here, the price of goods and services doesn't increase, but the "price" of money falls, which entails an increase in the drawn price tag on goods and services.

But, it is constantly confirmed that the CPI does not reflect on the real inflation, as the basket of goods and services is biased. For example, the government can choose goods A, B and C, which only experienced a 3% increase in price, for its basket, while the goods D, F, G experienced 10% inflation.

It is in the government's interest to understate official statistics in order to reduce social tension, and so they do it. Of course, real inflation and official inflation are completely different. I would be suspicious of anything that has the prefix "official".

This raises the issue of whether it is possible to measure / quantify inflation. What do you think? The Austrian school might have the answer, but I'd rather see what you think about inflation, and is it meaningful to try and measure it? Or, how meaningful is it?

By the time you measure inflation, the value of it is already changing (the money printing press never stops), which means it can't be measured (to get an objective figure).

[The Sceptical Chymist]

Typical example of:

https://en.wikipedia.org/wiki/Lies,_damned_lies,_and_statistics

That's the truth as far as the numbers reported by the government go--it sort of reminds me of when the Dow or S&P 500 get companies added or subtracted from it, and suddenly those indexes start shooting up. 

But aside from my general distrust of statistical abuse, I do see prices not inflating like it was 2021-22, so while the latest report might have been exaggerated, I do think inflation is decreasing.  That's not what takes up space in my head, though.  I'm wondering what's going to happen to the stock market (and crypto, too) once interest rates start coming down--and that's going to happen very soon; it's just a matter of what the Fed decides.  Hopefully they take a conservative approach and only cut the federal funds rate by 0.25% and not 0.5%.  There are a whole bunch of interconnected moving parts in the economy, but inflation and interest rates are among the big boys.

[Mate2237]

In Africa two things determine the increase of goods and services in the continent. And those two factors are Petrol and dollar. Whenever these two things increase in rate, every other things would increase and there is no selective goods or services but everything. Inflation is Africa cut across every sectors. And it is the "General Increase of goods and services" is term in Africa. And they are two parties that benefiting from inflation. The Capitalist and the government and the capitalists used the government to inflate the prices so that they can make more profit from their industries.

If the goods in the basket (basket of goods) can be changed then it is possible to measure inflation. And that means inflation is measured by the "basket of goods and services. Though the inflation periods in advance countries and Africa have difference base on the geographical habitation and economic power of the citizens. Inflation hit African countries more than the advance countries.

[Marvelockg]

This raises the issue of whether it is possible to measure / quantify inflation. What do you think? The Austrian school might have the answer, but I'd rather see what you think about inflation, and is it meaningful to try and measure it? Or, how meaningful is it?

if we're considering an ideal case where whatever agency that's in charge of monitoring the inflation on the prices of goods, services, transportation fares and a lot of other primary things people generally make use of carry out genuine analysis on these things accross different regions without being biased with the final inflation result they bring to the public, then inflation can be measured with those data but if not, the most common way to measure inflation is to go to the people at the grass root and that are not doing well financially and ask how much positive or negative change in the price of goods and services they've witness in a set out area at a particular period of time.

The average man on the street knows that last year, a litre of petrol was sold at certain price and that it has gone up or down by certain percentage by this time of the year. He he can also say same for medical bills, price of foodstuffs in the market and cost of taking care of an household for a week or month. This is the real data that quantifies the level of inflation in an area and if it's to be quantified, it's through this data that you can get an actual difference in the cost of living in different regions of the society.

[Alpha Marine]

Using CPI, things people spend more on takes a larger percentage of the basket, which can make things more irregular. This is because even if the prices of jewellery and electronic devices have increased, for instance, the cost of food and health care has not increased as much.

It won't be perfectly accurate in reality, because you can clearly see that the price of your milk has gone up by 8% since the past year, but the inflation rate is saying a 2% increase, but on the larger scale of things, its not far from the truth because you have to put everything into consideration.

I believe the only way we can have an accurate measurement of inflation is by not having a single inflation rate.
We can divide them into different categories. For example, we can have something like;
Real Estate: 9%
Transportation: 10%
Food: 12%
Education: 7%
Health Care: 8%. and so on.
I believe this will give a more accurate figure.

[BlackHatCoiner]

You can quantify it. You need a large amount of data.

What about the meaningfulness after quantifying it? What value does this metric give you?

Yes it will not be 100% accurate but it is enough data to make conclusions that will be useful for the government.

But what kind of conclusions does one make, even if the results are very accurate?

This is a little bit wrong. Inflation is a decrease in the purchasing power of money due to an increase in its amount in the total turnover of the world economy. That is, for each dollar you can buy fewer goods and services than before. Here, the price of goods and services doesn't increase, but the "price" of money falls, which entails an increase in the drawn price tag on goods and services.

This is not the strict definition of inflation. Inflation is just what I said. You can have inflation, even without expanding the money supply. For example, if you raise the minimum wage by 100%, then your country will experience inflation, but the money supply will have remained the same.

[Hamza2424]

Inflation is the general increase in the prices of goods and services within a given time. However, how general is this? You've probably come across terms such as "real inflation" or the "CPI". The latter, which stands for Consumer Price Index, is announced statistics made by the government, which measures inflation based on a basket of goods.

But, it is constantly confirmed that the CPI does not reflect on the real inflation, as the basket of goods and services is biased. For example, the government can choose goods A, B and C, which only experienced a 3% increase in price, for its basket, while the goods D, F, G experienced 10% inflation.

But, then again, even if you count all goods and services in an economy, how useful would that metric be? If we counted D, F and G, and those six were the only goods in the economy, we'd have a 6.5% inflation rate. (The average of 3 and 10). But human action comes into the equation, and things get messy. For example, if Alice depends on goods D, F and G, while Charlie only wants A, B and C, then inflation clearly influences Alice more than it does Charlie.

This raises the issue of whether it is possible to measure / quantify inflation. What do you think? The Austrian school might have the answer, but I'd rather see what you think about inflation, and is it meaningful to try and measure it? Or, how meaningful is it?

Ahh, my heading is buzzing anyway, for a person until or unless the living base is stable he won't care about inflation, as he's making a good living and he knows even if there's high inflation I'm able to service why he'll fall into such discussions, for those who are barely managing their livings it does matters. anyway, that was a random comment but as we are discussing the problem and solution.

According to the general study of the CPI and your comments in my view, there should be a diversified set of data, not like CPI data should cover the inflation in different sectors individually, it will give a realistic and detailed result, Let me elaborate as according to example there are 2 subjects with utility of A B C and D F G respectively, we can categorize their data into 2 sets where  A B C are relevant to the Medical i.e and D F G are related to Food & Agriculture i.e, and if there's a diversified data which is covering both individually it will make sense to both.

I know the practical implementation will still be a question due to its complexity but it's not impossible, this will allow governments to implement their policies in a different direction with a more efficient approach if they are willing.

We can measure but a general number is not possible at all, a diversified number can help a lot already and this what we need as well.

A number doesn't matter, what matters is reality and how willing are you to face it.

[Oluwa-btc]

This raises the issue of whether it is possible to measure / quantify inflation. What do you think? The Austrian school might have the answer, but I'd rather see what you think about inflation, and is it meaningful to try and measure it? Or, how meaningful is it?

You're definitely right on your point of view and I want to share my own thoughts as well, inflation has been on the rise now and there have been so many measure to quantify it that include the CPI "Customer Price index" you mentioned earlier and yes you can quantify inflation based on  the price of goods of a customer, I can explain abit with my understanding of it.
For example let's say we have two persons, Mr A and Mr B and they are trying to purchase different goods, Mr A would want to purchase goods on lower rates and demands while Mr B would want to get good on higher demands, now the fact that Mr B tend to purchase higher goods based on demands would make it possible for quantifying that goods this leading to inflation but I don't think this school of thought is necessary at all.