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.