IT'S TIME TO TALK ABOUT SOMETHING AND 'INFLATION' ISN'T THE RIGHT WORD FOR IT— Joe Weisenthal (@TheStalwart) May 26, 2021
I wrote a new blog post, riffing off the latest from @tragicbios, @RomanchukBrian and my chat with @rrpre about what feels like inflation, but isn't inflation https://t.co/R90cYBRaZj
Need for a Mathematical Methodology
- We need to decide what weight to assign to each item. The usual logic would be base the weighting on how large a weight the item has in overall consumer spending. Theoretically, we could use either the weights from January or February. This is a concern since a large price increase for a particular item in February could mean that consumers bought less.
- We need to have a mathematical function to create an average inflation rate.
- Under normal circumstances, we need to have a methodology to deal with items entering/leaving the list of prices.
Methodologies Have a Bias
References and Further Reading
- Triplett, Jack E. “Should the Cost‐of‐living Index Provide the Conceptual Framework for a Consumer Price Index?.” The Economic Journal 111.472 (2001): 311-334.