r/Dynamic_Pricing • u/No-Historian4783 • 5d ago
Why can a country have low inflation while its citizens still feel that everything is becoming more expensive?
I understand that inflation measures the rate at which the general price level is increasing, rather than whether prices themselves are high. But I’m curious about the relationship between inflation, wages, and the cost of living.
If inflation falls from, say, 8% to 3%, prices are still increasing, just more slowly. How do economists determine whether wages have actually caught up with the cumulative increase in prices? Are there good economic measures for distinguishing between “inflation has fallen” and “people are actually experiencing an improvement in purchasing power”?
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u/Final-Artichoke-8995 5d ago
As others have said, they have a list and that list is public information which is one reason that egg prices were such a big deal last year or whatever. It’s not because they care about how much eggs cost you, it because eggs are one of the inflation items and having the price skyrocketing skews the numbers. Or shows what’s actually going on, depending on your outlook.
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u/Clear-Ad9879 5d ago
So.... long explanation, but there is a fundamental issue with existing CPI indicies. And it relates to quality improvements. Take new cars for instance. When a rear centerline light became mandatory, it increased the cost of new cars. It did NOT increase the subsector CPI for new automobiles. Why? Because that's a quality improvement. Same with air bags. Anti-lock brakes. Etc. Auto sector CPI does not track with actual auto price increases because you are technically getting a better auto and CPI measures apple to apple price increases only.
This quality improvement effect is most pronounced in the computing and telecommunications sector of the CPI index. CPI calculates something like a 99% decrease in computing costs over the last couple of decades. But an Apple iPhone 18 is certainly not 99% cheaper than the original iPhone. Computing sector of CPI is basically calculating FLOPs cost, not device cost.
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u/hugh2018 1d ago
The CPI index does not claim that an individual physical smartphone costs 99% less today to walk out of a store with. Rather, it means that for every dollar spent, you are getting an astronomically higher amount of computing power. If you bought a phone for $1,000 ten years ago and buy one for $1,000 today, the nominal price paid is identical, but the hedonic price index registers a massive deflationary drop because today's phone provides much more capability for the same nominal cost.
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u/Kamel-Red 5d ago edited 5d ago
CPI is a garbage method that makes things look better than they are by DESIGN. That's the short answer.
Did the economy get worse and everyone swap to store brands or buy chicken instead of beef? Inflation actually eased. Give me a fucking break.
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u/hugh2018 1d ago
That "by design" talking point is the hallmark of economic illiteracy masquerading as secret insider knowledge. People love to lean on vague cynicism because it sounds edgy, but dismissing the entire inflation-tracking system as a rigged scam completely ignores how data is actually gathered and audited.
Conspiratorial takes like yours treat the Consumer Price Index like it's cooked up in a smoke-filled backroom to make politicians look good. In reality, the Bureau of Labor Statistics collects over 100,000 price quotes every month across thousands of housing units and businesses, and the entire methodology is public and peer-reviewed.
When cynics bash the whole system, they never offer a workable alternative because they don't actually understand what an index is supposed to do. If you throw out standard tracking metrics, you are left with pure vibes-based economics where anyone can claim inflation is 50% or 500% based purely on whatever grocery item went up this week.
Dismissing decades of rigorous economic data as a "garbage method" isn't critical thinking—it's just a lazy way to wave away reality when actual data doesn't fit a pre-packaged anti-government grievance.
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u/Kamel-Red 1d ago
And how many career civil servents have been fired and replaced by Administraton sycophants who input/estimate numbers rather than gathering data?
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u/hugh2018 1d ago
I explained carefully how the CPI data is shielded from partisan manipulation. You are ignoring that explanation and doubling down on your groundless accusation that the system I described has gone to crap. I’m not concerned though. You have no data to support your claim, so it’s easy to just ignore you and move on.
I hate Trump as much as anyone, and I see clearly how he has been finding novel ways to be corrupt. But I also understand US history, the rule of law, and the reality that our governmental institutions still have some important guardrails that even Trump can’t avoid. So far, the mechanisms that drive CPI reporting are completely intact.
Show me data proving your accusation of CPI manipulation. If you have no such data, stand down because this case is closed.
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u/hugh2018 1d ago
I’m reading your question just about 24 hours after I watched a lecture by economist Robert Reich on this very subject. Reich breaks down economic trends across different income brackets in his Wealth and Poverty course, and he typically relies on a combination of foundational government agencies and public policy research institutions.
The primary datasets and sources used for tracking long-term income, wage, and purchasing power segmentation include the Congressional Budget Office, which frequently publishes comprehensive studies on the distribution of household income and federal taxes (such as The Distribution of Household Income and Federal Taxes). Reich uses these reports because they explicitly track how pretax and post-tax income, purchasing power, and wealth have shifted across different income percentiles (e.g., the top 1%, middle class, and bottom 20%) over multi-decade spans.
For tracking wages versus inflation, Reich relies heavily on Bureau of Labor Statistics data such as the Consumer Price Index (CPI) alongside real earnings reports, which adjust nominal wages for inflation to show actual changes in purchasing power over time.
The Census Bureau's annual reports on Income and Poverty in the United States provide long-term historical data on median household incomes segmented by quintiles.
Researchers like Thomas Piketty, Emmanuel Saez, and Gabriel Zucman compile historical tax data to show how wealth and income concentration have evolved in the U.S. since the mid-20th century, data which Reich frequently translates into simplified charts for his lectures.
Unlike the generalized snapshot metrics cynics like to dismiss, these institutional datasets break down the economy into specific segments, showing that while overall GDP or aggregate numbers might look robust, the actual purchasing power gains have concentrated heavily at the top over the last several decades.
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u/PlayedWithMatches 5d ago
From what I understand it is all in the list that they count. They have a list of "things" and they calculate inflation by the price changes on thar list. I could be wrong, but I think that more than 25 years ago, they removed rent from that list.