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Wednesday, April 5, 2023

Why measuring inflation is surprisingly challenging — Michael Madowitz

This is a reason I put "inflation"" in quotes — lack of theoretical (causal) explanation and problems with measurability since "inflation" is not directly observable, while "inflation" gets treated as if it were a "thing." It's not only complicated but also complex, since prices are affected by expectations under uncertainty.
Conclusion
More research is clearly needed to understand the best measures of inflation to inform macro models, especially as the U.S. economy continues to respond to structural changes. There is a need for both an accurate understanding of capacity constraints in the economy, and a consistent measure of changes in inflationary expectations—and these may not be well captured by any one measure, let alone the measures traditionally used. For U.S. policymakers, the challenge is twofold. They need to calm inflationary expectations on the one hand, even if expectations are not based on a full understanding of what may persistently drive future inflation, while also preserving the health of the economy itself on the other. Balancing these needs will also require reexamining old assumptions.

Measuring inflation is hard. Official statistics are very good at measuring inflation, but how to use those measures is more tricky because it is conceptually difficult and context dependent. The COVID pandemic makes the application of go-to inflation measures even more challenging as it created unprecedented shifts in spending across sectors, leading to shifts appearing as increases or decreases in major components of primary inflation measures.
Washington Center for Equitable Growth

4 comments:

  1. You’re ignoring (again) the fact that the word “inflation” used in this context is a figure of speech…

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  2. “ while "inflation" gets treated as if it were a "thing."

    It’s called reification it’s a well known cognitive deficiency…

    https://dictionary.apa.org/reification

    “Reification
    n. treating an abstraction, concept, or formulation as though it were a real object or material thing. For instance, the statement You can’t fool nature would be an example of reification if taken literally. In logical argument, reification is regarded as a fallacy. Also called objectification”

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  3. https://www.etymonline.com/word/inflation

    “ inflation (n.)
    mid-14c., "swelling caused by gathering of 'wind' in the body; flatulence," also, figuratively, "outbursts of pride," from Latin inflationem (nominative inflatio) "a puffing up, a blowing into; flatulence," noun of action from past participle stem of inflare "blow into, puff up," figuratively "inspire, encourage," from in- "into" (from PIE root *en "in") + flare "to blow" (from PIE root *bhle- "to blow").
    Meaning "action of inflating with air or gas" is from c. 1600. Monetary sense of "enlargement of prices" (originally by an increase in the amount of money in circulation) first recorded 1838 in American English.”

    Art degree morons got their figurative “inflation” established in 1838 which was before Science Degree was established in 1860… same with Darwin, Marx and a lot of their other Art degree BS… so this is another one they snuck in before Science people got rid of them…

    Now we’re stuck with it… as long as Art degree morons keep teaching it to next generation in their moron factories…

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