Oh, don't get me started...first of all, you're wrong on the economists: there will be a positive impact on the economy because if they aren't producing their usual nonsense, people might actually think about what they are going to do instead of following what a talking head might say.
Second, measuring inflation is such an important thing that everyone does it wrong. Or, more exactly (and you touch on this), inflation is measured differently for different reasons: everyone can play the game and most do so to generate a number that has an agenda behind it. The CPI isn't an objective, dispassionate measurement: the government uses it to index how much pensions, etc. are going to increase, as well as a plethora of other uses, largely to avoid increasing outlays more than absolutely necessary. The CPI should be understood as the lower bound of general inflation: many price increases will be higher, and while some might be lower, they don't impact people the same way.
Any inflation rate that only looks at the standard , good x for price y on Thursday a month ago, what is that going to be this Thursday, ratio is going to find that a distorting influence will show up the farther you get away from that Thursday a month ago. Goods aren't constant: technology changes and the quality changes (hedonic deflators). I remember the first hedonic deflator for semiconductors: they started off measuring technical attributes per sq mm vs prices per unit, started off with the base year equal to 100 and called it off after three years because the index was 0.0000001 and falling. Technology had changed so much that they didn't have a useful basis for comparison because there was no useful basis for something changing that quickly.
Think of this way: interest rates are the price of money (what it costs to use it), inflation is the tax on money (what it costs not to use it). If the former is lower than the latter, sweet dreams for people lending; if the latter is higher than the former, the stuff of nightmares for the lenders. But none of that counts when the former is negative...because that means to meet revenue goals, there are no safe investments.
All good points, John and thanks for joining in. It's strange how people think of inflation as a "thing", rather than just one way to create an average price of a chosen basket of stuff. Strangely, when I was in graduate school (1970-73) the prevailing textbooks from t he late 60s did not even have the word inflation in the glossaries. I ended up writing my dissertation on inflation expectations and interest rates. From what I can see, we haven't progressed much since then.
It's one of the great tragedies of the economics profession that the fundamentals are neglected and vast amounts of time, energy and money are spent on trivia almost (but not quite) equal to discussing how many angels can dance on the head of a pin. One of the reasons I decided not to do a PhD back in the day...
Oh, don't get me started...first of all, you're wrong on the economists: there will be a positive impact on the economy because if they aren't producing their usual nonsense, people might actually think about what they are going to do instead of following what a talking head might say.
Second, measuring inflation is such an important thing that everyone does it wrong. Or, more exactly (and you touch on this), inflation is measured differently for different reasons: everyone can play the game and most do so to generate a number that has an agenda behind it. The CPI isn't an objective, dispassionate measurement: the government uses it to index how much pensions, etc. are going to increase, as well as a plethora of other uses, largely to avoid increasing outlays more than absolutely necessary. The CPI should be understood as the lower bound of general inflation: many price increases will be higher, and while some might be lower, they don't impact people the same way.
Any inflation rate that only looks at the standard , good x for price y on Thursday a month ago, what is that going to be this Thursday, ratio is going to find that a distorting influence will show up the farther you get away from that Thursday a month ago. Goods aren't constant: technology changes and the quality changes (hedonic deflators). I remember the first hedonic deflator for semiconductors: they started off measuring technical attributes per sq mm vs prices per unit, started off with the base year equal to 100 and called it off after three years because the index was 0.0000001 and falling. Technology had changed so much that they didn't have a useful basis for comparison because there was no useful basis for something changing that quickly.
Think of this way: interest rates are the price of money (what it costs to use it), inflation is the tax on money (what it costs not to use it). If the former is lower than the latter, sweet dreams for people lending; if the latter is higher than the former, the stuff of nightmares for the lenders. But none of that counts when the former is negative...because that means to meet revenue goals, there are no safe investments.
All good points, John and thanks for joining in. It's strange how people think of inflation as a "thing", rather than just one way to create an average price of a chosen basket of stuff. Strangely, when I was in graduate school (1970-73) the prevailing textbooks from t he late 60s did not even have the word inflation in the glossaries. I ended up writing my dissertation on inflation expectations and interest rates. From what I can see, we haven't progressed much since then.
It's one of the great tragedies of the economics profession that the fundamentals are neglected and vast amounts of time, energy and money are spent on trivia almost (but not quite) equal to discussing how many angels can dance on the head of a pin. One of the reasons I decided not to do a PhD back in the day...