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It bears repeating because this is a common mistake in inflation discussions: a decrease in inflation metrics means price increases are slowing down, it doesn’t
by lunaru 4y ago
It bears repeating because this is a common mistake in inflation discussions: a decrease in inflation metrics means price increases are slowing down, it doesn’t mean that prices are going down （that would require a negative CPI print).
Also, this number is year over year, so the decrease just means the price increases between Oct 21 and Oct 22 are not as steep as between Sept 21 to Sept 22, which is not hard to achieve because Sept 21 to Oct 21 had a bigger month over month jump.
The right way to interpret this number is that high prices have plateaued a bit. Yes that means your groceries are going to be x% higher than in 2020. Short of deflation, they always will be.
- lottin 4y agoYear-over-year inflation doesn't tell us anything about whether prices are going up or down right now.
- giantg2 4y agoNo historical data is going to tell us the future. But it can give us an idea of the trend, which is useful since in a large system like the economy the trend tends to change relatively slowly as compared to individual compentents.
- lottin 4y agoA statistic is only useful if you know how to interpret it. Case in point: you can have double digit year-over-year inflation, while simultaneously falling prices for the last 11 months.
- giantg2 4y agoThis doesn't make sense. Falling prices for what? CPI is a measure of cost of a basket of goods. You can't have net aggregate falling prices and a rising CPI unless you are measuring different prices.
- danielmarkbruce 4y agoCPI up 20% month on month in month 1. CPI down 1% month on month for the remaining 11 months. That would result in what they are saying.
- giantg2 4y agoAh, so not mismatched prices/goods, but mismatched temporally.
- dcow 4y agoWhich is still stupid to even be arguing about. It’s like people are trying to find a problem with data that is objectively reported by arguing that if you change the x axis you get an entirely different conclusion. No shit… that’s how data works.
- danielmarkbruce 4y agoNo one is suggesting there is a problem with the data. They are discussing how best to interpret it. And nobody is suggesting changing the x-axis. It's still time. The distinction people are making is which points does one use to calculate the slope? The most recent two? The most recent one and the one from a year ago? What are the implications of each?
- dcow 4y agoFrom what I can gather you’re trying to suggest that prices are going down because “recently” they have been (which isn't even true MoM they’ve still increased). That’s a pretty sloppy and inaccurate statement without a very precise definition of recently, which has been omitted. And YoY it’s not true. I didn't see any thread of discussion that you’re alluding to where people were trying to interpret what the data actually means. There was simply a word of caution about making sure not to let the headline confuse you. Then some incorrect and sloppy comments appeared like “actually this is incorrect data because the price is trending down MoM don’t be fooled”. That’s an entirely different thing. Hence why you see all the people trying to explain how it’s silly. I didn't introduce confusion by changing the slope calculation… I’m just responding to it trying to clean up the mess it’s made. I’m seriously confused: what is your actual point?
- anyonecancode 4y agoI think of it like the accelerator pedal on a car. A decline in inflation means the foot has eased up on the accelerator some, but the car is definitely still moving forward.
- amanj41 4y agoCouldn't some goods in the basket be slightly negative while others are positive? For example if rent went down relative to last year's baseline but groceries, gas, etc were all very much up.
- alooPotato 4y agoAnyone else feel like this is such a dumb way for the general public to track inflation. Like, a simple line chart with the X axis being time and the Y axis being the price of a basket of goods would be so much clearer
- boppo1 4y agoThat's why we don't use it.
- randomdata 4y agoIs inflation (meaning CPI figures) meant for the general public? It's a useful economic tool, but not very relevant to the average Joe. I would think expansion of cost of living is what the general public is interested in, and for that they have to track their spending, and can do so in any way they see fit.
- alooPotato 4y agoI'm in the general public. Basically anyone not in finance or economics I'd consider to be the general public. It's still important to know the trend to know how and where to invest your resource.
- randomdata 4y agoIf you're utilizing the inflation figure, are you really the average Joe, and if you are utilizing that information are you really going to stop with the headline figure? Inflation is more nuanced than is captured in a single variable.
- alooPotato 4y agoIt's prob the reason the average Joe doesn't look at inflation - because its presented in the worst way possible. I'm not trying to be the best investor or anything like that - but knowing the basic inflation trend I think would be useful to a large % of the population.
- Victerius 4y agoFor the mathematically inclined among us, dp/dt is still positive. It's d^2p/dt^2 that is slightly negative.
- redox99 4y agoNot really. It means CPI_oct22 - CPI_oct21 < CPI_sep22 - CPI_sep21 d^2p/dt^2 isn't necessarily negative.
- OscarCunningham 4y ago'Inflation is slower now than it was this time last year.'
- Victerius 4y agoOh, right. I mixed it with month-on-month inflation.
- queuebert 4y agoAnyone who's ever had to numerically estimate second and higher derivatives from noisy data can appreciate how difficult the Fed's job is.
- compumike 4y agoFor the mathematically inclined, here is a graph of 1/p over the past year: https://totalrealreturns.com/s/USDOLLAR?start=2021-11-10&end=2022-11-10 https://totalrealreturns.com/s/USDOLLAR?start=2021-11-10&end... or over a longer time period: https://totalrealreturns.com/s/USDOLLAR https://totalrealreturns.com/s/USDOLLAR (this site is my side project) If "p" is the relative price level index (CPI-U in this case), then "1/p" represents the relative purchasing power of a single dollar over time -- explained on homepage in more detail.
- contravariant 4y agoThough the mathematically inclined should also know that we're not looking at dp/dt, we're looking at p(t) - p(t-T). The difference is important, especially because we're looking at a yearly increase every month. The derivative of the annual inflation is not d^2p/dt^2 but (dp(t)/dt - dp(t-T)/dt).
- germandiago 4y agoWell explained. Idk for english-speaking countries or your country of origin but the average spanish is an absolute illiterate in economy. These explanations are very necessary so that people develop an intuition of what is going on.
- giantg2 4y agoMany Americans are illiterate on numbers and the economy too. I still remember the classic example that a burger chain released a 1/3 pound burger to compete with another chain's 1/4 pound burger, and many people thought the 1/4 pound was bigger... Edit: there are some people saying it's a myth, or not a complete picture. Looks like we don't have the data. But my point is that we aren't very good with numbers or economics. https://www.scientificamerican.com/article/fractions-where-it-all-goes-wrong/ https://www.scientificamerican.com/article/fractions-where-i... https://www.stlouisfed.org/on-the-economy/2018/september/how-americans-rate-financial-literacy https://www.stlouisfed.org/on-the-economy/2018/september/how...
- Forgeties79 4y agoI’ve always thought this was somewhat apocryphal/a myth. Did it actually occur?
- hwbehrens 4y agoIt's hard to find contemporaneous evidence, because it was apparently revealed by an internal company focus group, but here's [0] the page from the company themselves with the claim. It wasn't revealed at all until the founder's memoirs in 2007, and it wasn't reported widely until this [1] 2014 article. 0: https://awrestaurants.com/blog/aw-third-pound-burger-fractions https://awrestaurants.com/blog/aw-third-pound-burger-fractio... 1: https://www.nytimes.com/2014/07/27/magazine/why-do-americans-stink-at-math.html https://www.nytimes.com/2014/07/27/magazine/why-do-americans...
- turrican 4y agoSadly, it is true. The chain was A&W: https://awrestaurants.com/blog/aw-third-pound-burger-fractions https://awrestaurants.com/blog/aw-third-pound-burger-fractio...
- Ar-Curunir 4y agoI.e. the rate of price increase has slowed, not the price increase itself
- maratc 4y agoPrices are still increasing, and they are still increasing fast. It's just that recently, they increased even faster than now.
- nashashmi 4y agoAlso it is worth mentioning that part of the major reason accounting for inflation is car price. It’s going down now as chip makers produce more and prices go down further.
- onlyrealcuzzo 4y agoIt's also going down because it's a debt market and financing is more expensive w/ used car interest rates at 9% instead of 4% and new cars at 5% instead of 0%...
- nemo44x 4y agoHopefully that helps with new car pricing. Dealers are still selling well above MSRP.
- staringback 4y agoThey are only selling well above MSRP because people are willing to buy well above MSRP
- nemo44x 4y agoWell, yeah. There was an imbalance in the market between the supply of cars and the demand from consumers for cars. People were willing to spend more than ever, especially with super low interest rates making it nearly free to borrow money.
- Der_Einzige 4y agoCar lots need to be knocked down a peg or ten. Car sales folks are the scummiest folks on earth and they have been empowered by this disaster of a market for too long. The overwhelming majority of car sales people know almost nothing about cars. That's already how you know that their industry is basically useless. It's also extremely predatory. Anyone trying to pay a 30K mark up on a rav4 prime is being swindled (even if they think they're not). You (the sales person) should prevent obviously stupid car sales (or shit like 25% apr hellcats to US soldiers), but of course not, they're greedy!
- matwood 4y agoAnd to add to your explanation, because inflation jumped so quickly and then slowed we'll eventually hit a YoY number that plummets. If milk is $4/gallon today and still $4/gallon 12 mos. from now, that's 0% YoY inflation. This will inevitably lead to people saying the numbers are fake because milk used to be $2/gallon.
- throw0101a 4y ago> If milk is $4/gallon today and still $4/gallon 12 mos. from now, that's 0% YoY inflation. Conversely, if there was a one-time jump in a particular item, it will take a year before it gets 'removed' from the inflation numbers. Extremely contrived example: if gas/petrol was $1/L in December 2021 (and generally in all of 2021), but $1.20/L in January 2022, then there will be a 20% YoY jump in inflation for the January number comparing Jan 2021 to Jan 2022. Now if gas stays at $1.20/L in February 2022, it will still register as 20% YoY even though the price has not changed month-to-month. That 20% (YoY) is "stuck" in the system until January 2023 when we're comparing $1.20/L to $1.20/L. A one-time jump can 'skew' the numbers if all you look at is YoY metrics.
- soared 4y agoIt’s not really skewing anything though, since the price is 20% yoy?
- danielmarkbruce 4y agoIt is skewing if you are looking for an up to date change. It's like, is it better to get two points on a curved line and draw a straight line through them, or is it better to calculate the derivative and the the slope at a specific point?
- joshuahedlund 4y agoThat depends on how noisy or smooth the changes are. That's why it's valuable to look at both.
- thomastjeffery 4y agoThey effectively said, "The increase went down." It would have been much clearer for them to say, "The increase has slowed."
- onion2k 4y agoOr clearer still "The increase is smaller than expected."
- laweijfmvo 4y agoThis is like the 3rd derivative, right? e.g. we now have a slightly lower rate of acceleration towards the cliff than before?
- formerkrogemp 4y agoSecond derivative I think. Inflation is change in prices. Change in inflation is a second order derivative? I wish more Americans knew at least a little conceptually about derivatives. Personally, I need to review them. Anecdotally, the number of accountants that I've met that haven't progressed beyond middle school level math is depressing as well.
- ac2u 4y agoI think it's second derivative. 3rd derivative would be Nixon's: >When campaigning for a second term in office, U.S. President Richard Nixon announced that the rate of increase of inflation was decreasing, which has been noted as "the first time a sitting president used the third derivative to advance his case for reelection."[2] Since inflation is itself a derivative—the rate at which the purchasing power of money decreases—then the rate of increase of inflation is the derivative of inflation, opposite in sign to the second time derivative of the purchasing power of money. Stating that a function is decreasing is equivalent to stating that its derivative is negative, so Nixon's statement is that the second derivative of inflation is negative, and so the third derivative of purchasing power is positive. https://en.wikipedia.org/wiki/Third_derivative#Economic_examples https://en.wikipedia.org/wiki/Third_derivative#Economic_exam...
- ajross 4y ago> The right way to interpret this number is that high prices have plateaued a bit. This part is true. > that means your groceries are going to be x% higher than in 2020 But this part jumps right back into the much bigger fallacy that inflation represents a change in value and not price! Sure, groceries are higher in price, just like your assets are higher in value (on average) and your wages are higher (on average). But in any case, your notion that inflation isn't instantaneously halted is a little spun. In fact month-to-month CPI change for October is 0.4%, which corresponds to about 4.9% per year. That's higher than we've seen for most of the last decade, but not a number most people would consider "high" in the sense of "disruptive to economic activity".
- FollowingTheDao 4y agoAnd I find it hysterical that the 10 year Bond dropped 4% because of this. They think this is the peak, as in the Fed will stop raising interest rates and inflation will only get lower from here. A good time to but the 10 year Bond IMHO.
- datalopers 4y agoWhy would you suggest buying a bond on the exact day that yields just plummeted.
- FollowingTheDao 4y agoIt is funny to me that this does not make sense to you. Do you think I should have bought it when the price peaked? What I am saying is that the "market", which is now controlled by AI reading newsprint, is wrong and that 10 Year Bonds will increases again.
- datalopers 4y agoI don’t think you understand how bonds work. However I do agree that yields will increase and this is temporary.
- FollowingTheDao 4y ago? You don't think I know how bonds work? Yet you agree with me?
- NavinF 4y ago> the "market", which is now controlled by AI reading newsprint You might as well say "I don't understand how bonds work". It's fewer words.
- FollowingTheDao 4y ago
- danielmarkbruce 4y agoYou could just say: CPI is up 0.4% month-over-month. It gets reported.
- msoad 4y agoInflation over the last year was 7.7% - if the October rate holds for a year, it will be under half of the last years inflation rate coming in at 3.6% That’s the number that matters in a forward looking instrument like the market
- danielmarkbruce 4y agoThis isn't right. It could in fact mean prices are going down. Had we just reported a month on month -0.4% instead of 0.4%, the yoy rate would have been reported as 6.9%. A headline of 6.9% would mean prices are actually going down.
- meragrin_ 4y agoAnything positive YoY means prices have gone up overall over the last year. For prices to have gone down in general over the last year, the YoY would have to be negative. A headline of 6.9% would mean prices have gone up.
- danielmarkbruce 4y agoThe slope of price v time would be going down if they'd posted 6.9% yoy. The discussion is around how the numbers should be interpreted. There isn't confusion around what they have literally reported.
- dcow 4y agoNope. You are continually overlaying data with different X axis and trying to draw conclusions and sound authoritative and it’s just sloppy and irresponsible. The instantaneous slope would be negative if the last month happened to observe a slight decrease, true. But the slope of the line between last year and this year would be positive. Both statements can be true: 1. prices just fell slightly since last month 2. prices have risen overall since last year EDIT: you edited your comment I’m not going to update mine.
- danielmarkbruce 4y agoSame x axis - time. CPI is a time series, you get a point every month. Everyone is trying to draw conclusions, it's the point of this thread. >> The instantaneous slope would be negative if the last month happened to observe a slight decrease, true This is sloppy. It's fine, it's a forum, we aren't writing academic papers. Nobody is trying to figure the slope of the straight line between the two points, that's what is already reported. Yes, both can be true.
- rzimmerman 4y agoYes the YoY number is useful for getting rid of seasonal variations. The monthly CPI is also noisy. But when there’s a big spike over a few months (like we had 8-16 months ago) YoY won’t go down meaningfully for at least a year. This is actually great (if noisy) news. 2 months of 0.4% CPI increase is equivalent to 5% yearly inflation. But the YoY is still high because it was much worse 8-12 months ago. I hadn’t even considered that people will think low numbers are a lie because prices don’t go down. But of course (sadly) you’re right.
- lupire 4y agoThe seasonality aspect is a distraction when inflation is so volatile due to all the pandemic craziness.
- deleted 4y ago[deleted]
- fakethenews2022 4y agoMany words for something that can be explained by a single cumulative CPI graph.
- fakethenews2022 4y agoOf course it probably needs a second graph under it of 2% cumulative CPI for comparison.
- idontpost 4y ago
- la64710 4y agoWhich businessman in their right mind will decrease the price of their products because of cost decrease? Not unless there is intense competition. Because of that for large scale monopoly business like commodities once the prices go up it may not come down again.
- Green_man 4y agoI may be missing something, but if there is no competitive pressure/monopolistic market, why would these businesses need the excuse of inflation/cost increases to increase their prices? Wouldn't we expect prices to have gone up before inflation? Or is this a specific criticism of a regulatory blind spot for reigning in market power? Monopolies can get away with price increases now, but they wouldn't normally?
- smileysteve 4y agoWhat is "before inflation"? Deflation is bad it means you should keep your dollars instead of investing them.
- lupire 4y agoDo you buy less food when interest rates on your investments are higher?
- massysett 4y agoThe argument is that they had market power before, but were afraid to exercise it for political reasons or because they feared enforcement action. Now, with inflation, the company has an excuse to raise prices, but now they're raising them only partly due to increased costs, and partly as an exercise of their market power.
- jliptzin 4y agoIf you sell commodities that is literally the opposite of a monopoly
- WanderPanda 4y agoYou mean a negative CPI growth / CPI decline, right? With a negative CPI stuff would be free + we would be getting money on top (on average) :D I think the best way to understand it is to just look at the index itself [1] and not the first or second derivative. [1] https://tradingeconomics.com/united-states/consumer-price-index-cpi https://tradingeconomics.com/united-states/consumer-price-in...
- sonthonax 4y agoAs a general consumer, the slowdown in the erosion of my earning power is welcome news. My gamma hedging hedging costs have never been lower.
- citilife 4y agoThe number is largely manipulated anyway. It's more complex than even this because you have to account for price elasticity. They are giving oil a very wide fluctuation, for instance. I've been tracking my expenses since 2015 and they're up around ~50% since then, for effectively the same food (eggs, bread, meat, etc). I eat ~2800-3000 calories per day (which I also track) and that's been consistent. According to BLS it should be up only 27%, but everyone knows that's just not true. Remember ~1 year ago when the administration was calling prices "transitory", that means they're claiming a larger elasticity in prices so inflation doesn't look bad because they believe they'll come back down (soon).
- kelnos 4y agoSure, but this is still exactly what we want to see. If the target is 2%, YoY metrics moving in that direction is a positive step. The only thing we can hope for is that, as inflation numbers continue dropping back toward "normal", wage increases will eventually catch up and make those already-higher prices less difficult to swallow. Of course, it never works out that neatly.