Consumer prices aren't broadly income sensitive. Meaning the price of steak is not more because the person buying it makes more, nor is the price of hamburger less.
HOWEVER
What can be done -- and what I have done in a couple of my inflation articles, is you can assess real income effects by using the various subindices as a deflator.
Consumer prices aren't broadly income sensitive. Meaning the price of steak is not more because the person buying it makes more, nor is the price of hamburger less.
HOWEVER
What can be done -- and what I have done in a couple of my inflation articles, is you can assess real income effects by using the various subindices as a deflator.
This is also why the subindices are relevant, and arguably more relevant than the headline figure. If you build a deflator from the food index, or the shelter index, or even the energy index, you can get some dramatically different results.
You get different results if you use the Zillow Observed Rent Index (ZORI).
The GDP deflator that the BEA uses to calculate "real" GDP and "real" incomes attempts to incorporate all possible influences, including corporate profits and things like intermediate goods prices--stuff which doesn't directly impinge on final demand.
The GDP deflator might make sense for assessing economic growth overall, but I have in a couple of articles now recalculated "real" incomes and "real" wages using the CPI as the deflator.
One can argue how close to reality such calculations come, but I think for the consumer whose most price sensitive, deflating real income based on actual observed price inflation makes the most sense.
I realize hamburger costs me the same as it costs a single Mom. But if hamburger is .0001% of my budget it is meaningless to say it increased 10% in cost. If it is 1% of my budget and it increased 50% it tells a different story. My point is the basket of goods concept gives an overview but a basket of actual spending goods per quintile will tell you who is being hurt.
Case in point, my lefty pensioned acquaintances were all for increasing minimum wages. All for it. I said it will hurt more people than it helps and YOU PEOPLE will be most hurt. Their pensions have gone up a bit as they are somewhat indexed. But their spending income has dramatically shrunk. They have no housing costs in terms of rent/mortgage. Their costs were food, entertainment, travel and gas. They all go out about 1/3 the times they previously did.
Do a per quintile looking at what each quintile spends and I think real
The question would be what percent of income does one spend on food and necessaries broken down by quintile.
I know between the BEA and the BLS the income side of that is captured, but I don't know how much of the expense side is broken down appropriately.
I'm sure there have been economic surveys to that effect done in the past, but I'll have to dig to see if there's a way to present that information using current wage, price, and inflation data.
Consumer prices aren't broadly income sensitive. Meaning the price of steak is not more because the person buying it makes more, nor is the price of hamburger less.
HOWEVER
What can be done -- and what I have done in a couple of my inflation articles, is you can assess real income effects by using the various subindices as a deflator.
https://newsletter.allfactsmatter.us/p/lets-get-real-inflations-impact-on
In particular, that treatment showed that based on food price inflation, real incomes have decreased the most under the (Biden-)Harris Administration.
https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fa8ead357-0fe5-47c3-a2f7-158c08b48436_1023x489.png
This is also why the subindices are relevant, and arguably more relevant than the headline figure. If you build a deflator from the food index, or the shelter index, or even the energy index, you can get some dramatically different results.
You get different results if you use the Zillow Observed Rent Index (ZORI).
The GDP deflator that the BEA uses to calculate "real" GDP and "real" incomes attempts to incorporate all possible influences, including corporate profits and things like intermediate goods prices--stuff which doesn't directly impinge on final demand.
The GDP deflator might make sense for assessing economic growth overall, but I have in a couple of articles now recalculated "real" incomes and "real" wages using the CPI as the deflator.
One can argue how close to reality such calculations come, but I think for the consumer whose most price sensitive, deflating real income based on actual observed price inflation makes the most sense.
I realize hamburger costs me the same as it costs a single Mom. But if hamburger is .0001% of my budget it is meaningless to say it increased 10% in cost. If it is 1% of my budget and it increased 50% it tells a different story. My point is the basket of goods concept gives an overview but a basket of actual spending goods per quintile will tell you who is being hurt.
Case in point, my lefty pensioned acquaintances were all for increasing minimum wages. All for it. I said it will hurt more people than it helps and YOU PEOPLE will be most hurt. Their pensions have gone up a bit as they are somewhat indexed. But their spending income has dramatically shrunk. They have no housing costs in terms of rent/mortgage. Their costs were food, entertainment, travel and gas. They all go out about 1/3 the times they previously did.
Do a per quintile looking at what each quintile spends and I think real
Impacts would show five different stories.
The question would be what percent of income does one spend on food and necessaries broken down by quintile.
I know between the BEA and the BLS the income side of that is captured, but I don't know how much of the expense side is broken down appropriately.
I'm sure there have been economic surveys to that effect done in the past, but I'll have to dig to see if there's a way to present that information using current wage, price, and inflation data.
By the way, I like your articles.
Thank you! I'm glad you find them useful!
Thank you.