No. of Recommendations: 15
Inflation means a lot of things to a lot of people. I take a fairly monetary inflation point of view: how well has a given currency been keeping its general purpose purchasing power?
Depending on the mix of goods that you personally consume, and depending on the recent product-specific changes in prices, your own cost of living might change in a wildly different way from mine or someone else's. That may be very bad or very good for your personally, or for me personally, but that's not what interests me. I'm more into "how well has a currency held its value".
Because US CPI is made up of a basket of goods, and because individual goods experience product- and service-specific price shocks, it's not immediately obvious what the "real" monetary number is. Every possible different mix of goods and services gives you a different inflation rate. But if you solve a fancy set of equations, you can disentangle things: assume that every price change is the sum of an economy-wide number and a product-specific number, then find the economy-wide number that minimizes the errors. That's the monetary inflation: the portion that is NOT explained by product-specific changes.
The Fed does this for us, mostly. Their latest iteration is called the Multivariate Core Inflation metric.
https://www.newyorkfed.org/research/policy/mct#--:...This tells us with reasonably high confidence that, in terms of general purpose currency value, the US dollar has had inflation of 2.36% in year to end May.
Unfortunately, there are two disadvantages with this metric. First, it is a series of year-on-year percentage changes, not a series of index levels like CPI. Thus it can't be used (at least not directly) to generate inflation-adjusted prices for a portfolio in the past, so you can't create a series of real returns from a set of prices or portfolio values. And second, they recalculate the entire historical series every month, so (rather surprisingly) even old figures change a little with each new data release.
Neither of those is a fatal error. As for the figures being updated, just use the most recent complete data set from time to time. They mostly don't change that much, other than the most recent few figures.
As for the fact that it's only a series of year-on-year rates, I've hacked together a spreadsheet that tries to create a time series by minimizing errors from their year-on-year figures and minimizing month-to-month squiggles. After the best-fit convergence I have to do more smoothing, as it still seems to have month-to-month oscillation. It's not perfect, but I think it will do.
Anyway, I thought I'd pass this along. What's it good for? Well, for example, if the price of gasoline or rent spikes, that won't show up in this data series. That isn't a loss of value of a dollar, that's just an instance that one particular thing got more expensive. If you don't know what the funds in a portfolio are going to get spent on, then you need to know how much general "buying power" a dollar has, not what the monthly bills of Joe Average will do.
<digression>
Being a non-US person, I further turn US dollar balances into a currency-neutral unit. The US dollar is one that goes up and down in value a whole lot, and tracking things in US dollars gives some odd results. This isn't obvious to many observers because so many things in the international press are denominated in dollars. The most obvious thing is to use the US dollar index ($USD), but the problem is that it's weighted based on US trade, not in a sort of "G7" kind of way. The quickest "simple" currency stabilizer I've found is this: among relatively major currencies, the FX between GBP and Canadian dollars has been by far the most stable in the last 25+ years. I've found a good "real value" number is adjusting based on the US dollar cost of a bucket of [10 quid + 15 loonies]. If it is currently costing a lot of USD to buy that basket, the USD is probably low, and vice versa.
</digression>
Anyway, I'm not sure this interests anyone else, but here is the historical series I constructed for US dollar monetary inflation. It's arbitrarily scaled to have the latest data value = 100. It is the series that represents my best effort to get year-on-year MCT inflation figures that match those from teh Fed, with teh constraint of short term smoothness.
This series seems to suggest that inflation since 1989 has been less than all-city urban CPI suggests: the dollar has held more of its long-term
general purpose purchasing power than one might expect. The difference is around 1.23%/year. CPI seems higher primarily because its basket of goods has some things in it which are (a) heavily weighted, and (b) a lot more expensive than they were decades ago--those specific things have gone up in price relative to other things. And, conversely, some things with smaller weights in CPI have had product-specific price changes lower than other things. Note, as mentioned, this is not to suggest that any one person's personal expenditure cost has gone up less. Indeed, it may have gone up more. Rather, it's a statement about the general purpose value of a dollar, ASIDE from product-specific issues.
(I did this last month, so it's not quite up to date)
1989-09 47.822
1989-10 47.948
1989-11 48.043
1989-12 48.147
1990-01 48.279
1990-02 48.461
1990-03 48.645
1990-04 48.810
1990-05 48.956
1990-06 49.159
1990-07 49.377
1990-08 49.589
1990-09 49.734
1990-10 49.838
1990-11 49.902
1990-12 49.973
1991-01 50.073
1991-02 50.225
1991-03 50.383
1991-04 50.528
1991-05 50.657
1991-06 50.831
1991-07 51.029
1991-08 51.227
1991-09 51.353
1991-10 51.440
1991-11 51.490
1991-12 51.547
1992-01 51.628
1992-02 51.758
1992-03 51.902
1992-04 52.031
1992-05 52.142
1992-06 52.302
1992-07 52.483
1992-08 52.663
1992-09 52.774
1992-10 52.854
1992-11 52.900
1992-12 52.953
1993-01 53.028
1993-02 53.146
1993-03 53.277
1993-04 53.392
1993-05 53.489
1993-06 53.635
1993-07 53.801
1993-08 53.963
1993-09 54.053
1993-10 54.116
1993-11 54.159
1993-12 54.210
1994-01 54.288
1994-02 54.408
1994-03 54.539
1994-04 54.649
1994-05 54.740
1994-06 54.880
1994-07 55.036
1994-08 55.184
1994-09 55.264
1994-10 55.321
1994-11 55.357
1994-12 55.403
1995-01 55.476
1995-02 55.591
1995-03 55.715
1995-04 55.821
1995-05 55.906
1995-06 56.040
1995-07 56.181
1995-08 56.312
1995-09 56.378
1995-10 56.428
1995-11 56.466
1995-12 56.514
1996-01 56.585
1996-02 56.702
1996-03 56.829
1996-04 56.943
1996-05 57.036
1996-06 57.176
1996-07 57.313
1996-08 57.432
1996-09 57.482
1996-10 57.520
1996-11 57.543
1996-12 57.568
1997-01 57.612
1997-02 57.699
1997-03 57.792
1997-04 57.876
1997-05 57.950
1997-06 58.077
1997-07 58.193
1997-08 58.294
1997-09 58.334
1997-10 58.365
1997-11 58.386
1997-12 58.412
1998-01 58.452
1998-02 58.524
1998-03 58.599
1998-04 58.669
1998-05 58.728
1998-06 58.837
1998-07 58.934
1998-08 59.012
1998-09 59.032
1998-10 59.050
1998-11 59.071
1998-12 59.109
1999-01 59.162
1999-02 59.248
1999-03 59.349
1999-04 59.451
1999-05 59.554
1999-06 59.702
1999-07 59.842
1999-08 59.958
1999-09 60.010
1999-10 60.063
1999-11 60.120
1999-12 60.181
2000-01 60.258
2000-02 60.363
2000-03 60.487
2000-04 60.611
2000-05 60.736
2000-06 60.903
2000-07 61.056
2000-08 61.183
2000-09 61.247
2000-10 61.304
2000-11 61.355
2000-12 61.404
2001-01 61.467
2001-02 61.556
2001-03 61.662
2001-04 61.760
2001-05 61.858
2001-06 61.994
2001-07 62.126
2001-08 62.235
2001-09 62.288
2001-10 62.340
2001-11 62.390
2001-12 62.447
2002-01 62.522
2002-02 62.626
2002-03 62.749
2002-04 62.860
2002-05 62.969
2002-06 63.108
2002-07 63.235
2002-08 63.331
2002-09 63.369
2002-10 63.409
2002-11 63.446
2002-12 63.485
2003-01 63.548
2003-02 63.646
2003-03 63.777
2003-04 63.904
2003-05 64.037
2003-06 64.207
2003-07 64.364
2003-08 64.496
2003-09 64.577
2003-10 64.658
2003-11 64.734
2003-12 64.805
2004-01 64.888
2004-02 64.992
2004-03 65.116
2004-04 65.233
2004-05 65.360
2004-06 65.530
2004-07 65.693
2004-08 65.831
2004-09 65.921
2004-10 66.016
2004-11 66.114
2004-12 66.206
2005-01 66.307
2005-02 66.414
2005-03 66.540
2005-04 66.655
2005-05 66.794
2005-06 66.976
2005-07 67.158
2005-08 67.310
2005-09 67.426
2005-10 67.554
2005-11 67.698
2005-12 67.832
2006-01 67.971
2006-02 68.099
2006-03 68.226
2006-04 68.335
2006-05 68.461
2006-06 68.624
2006-07 68.779
2006-08 68.902
2006-09 68.993
2006-10 69.094
2006-11 69.203
2006-12 69.306
2007-01 69.417
2007-02 69.531
2007-03 69.650
2007-04 69.763
2007-05 69.895
2007-06 70.059
2007-07 70.219
2007-08 70.355
2007-09 70.466
2007-10 70.585
2007-11 70.709
2007-12 70.818
2008-01 70.930
2008-02 71.043
2008-03 71.152
2008-04 71.234
2008-05 71.324
2008-06 71.432
2008-07 71.530
2008-08 71.597
2008-09 71.642
2008-10 71.686
2008-11 71.729
2008-12 71.765
2009-01 71.821
2009-02 71.891
2009-03 71.966
2009-04 72.033
2009-05 72.114
2009-06 72.218
2009-07 72.311
2009-08 72.374
2009-09 72.411
2009-10 72.447
2009-11 72.482
2009-12 72.513
2010-01 72.557
2010-02 72.617
2010-03 72.681
2010-04 72.753
2010-05 72.850
2010-06 72.982
2010-07 73.120
2010-08 73.236
2010-09 73.347
2010-10 73.465
2010-11 73.587
2010-12 73.703
2011-01 73.829
2011-02 73.954
2011-03 74.074
2011-04 74.187
2011-05 74.305
2011-06 74.436
2011-07 74.568
2011-08 74.680
2011-09 74.791
2011-10 74.892
2011-11 75.004
2011-12 75.102
2012-01 75.197
2012-02 75.299
2012-03 75.397
2012-04 75.490
2012-05 75.587
2012-06 75.699
2012-07 75.817
2012-08 75.908
2012-09 76.009
2012-10 76.106
2012-11 76.215
2012-12 76.314
2013-01 76.402
2013-02 76.497
2013-03 76.574
2013-04 76.653
2013-05 76.742
2013-06 76.848
2013-07 76.965
2013-08 77.059
2013-09 77.164
2013-10 77.269
2013-11 77.389
2013-12 77.505
2014-01 77.611
2014-02 77.715
2014-03 77.801
2014-04 77.879
2014-05 77.966
2014-06 78.068
2014-07 78.175
2014-08 78.248
2014-09 78.332
2014-10 78.419
2014-11 78.531
2014-12 78.640
2015-01 78.749
2015-02 78.861
2015-03 78.949
2015-04 79.033
2015-05 79.132
2015-06 79.237
2015-07 79.336
2015-08 79.408
2015-09 79.508
2015-10 79.617
2015-11 79.743
2015-12 79.882
2016-01 80.018
2016-02 80.146
2016-03 80.262
2016-04 80.383
2016-05 80.519
2016-06 80.637
2016-07 80.736
2016-08 80.815
2016-09 80.924
2016-10 81.041
2016-11 81.166
2016-12 81.300
2017-01 81.422
2017-02 81.529
2017-03 81.631
2017-04 81.754
2017-05 81.888
2017-06 81.997
2017-07 82.094
2017-08 82.198
2017-09 82.349
2017-10 82.506
2017-11 82.675
2017-12 82.844
2018-01 82.978
2018-02 83.088
2018-03 83.187
2018-04 83.311
2018-05 83.435
2018-06 83.530
2018-07 83.631
2018-08 83.739
2018-09 83.892
2018-10 84.056
2018-11 84.235
2018-12 84.410
2019-01 84.549
2019-02 84.658
2019-03 84.740
2019-04 84.831
2019-05 84.925
2019-06 84.994
2019-07 85.076
2019-08 85.182
2019-09 85.352
2019-10 85.532
2019-11 85.724
2019-12 85.918
2020-01 86.083
2020-02 86.212
2020-03 86.322
2020-04 86.442
2020-05 86.552
2020-06 86.626
2020-07 86.717
2020-08 86.866
2020-09 87.107
2020-10 87.388
2020-11 87.724
2020-12 88.086
2021-01 88.434
2021-02 88.763
2021-03 89.081
2021-04 89.421
2021-05 89.772
2021-06 90.080
2021-07 90.369
2021-08 90.681
2021-09 91.076
2021-10 91.511
2021-11 91.976
2021-12 92.449
2022-01 92.911
2022-02 93.325
2022-03 93.698
2022-04 94.096
2022-05 94.496
2022-06 94.776
2022-07 95.023
2022-08 95.331
2022-09 95.712
2022-10 96.064
2022-11 96.341
2022-12 96.611
2023-01 96.862
2023-02 97.036
2023-03 97.217
2023-04 97.429
2023-05 97.640
2023-06 97.716
2023-07 97.807
2023-08 98.060
2023-09 98.464
2023-10 98.824
2023-11 99.125
2023-12 99.408
2024-01 99.556
2024-02 99.704
2024-03 99.852
2024-04 100.000
