This raises a question I have always wondered about. In calculating the CPI, the BLS uses fixed weights which are updated only every decade or so, right? Right-wingers claim that this overstates increases in the cost of living because, in reality, people switch from high-priced goods to low-priced substitutes. But isn't it equally likely that it understates inflation, because as prices of necessities rise (like housing and health care) they eat up a growing fraction of consumer income and play a bigger role in the cost of living? I mean this seems obvious to me, but during all that hullaballoo over the CPI a few years back, no one ever said this, so maybe there's an error in my logic?
Ellen [EMAIL PROTECTED] writes: >at some point, economists decided on a conventional definition of >inflation >as referring only to increasing prices of newly-produced goods and >services. >Given that convention, inflation in housing prices only counts when it >affects apartment rents (or "imputed" rent on owner-occupied housing) and >other expenses of using housing, rather than the hike in the price of >housing as an asset. (The economists "impute" by trying to figure out how >much it _would_ cost a home-owner to rent his or her home.) Equities are >simply paper promises, rather than goods and services, so that equity >inflation isn't counted. Health care is definitely counted, while only the >part of education that isn't paid for via taxes is counted as part of the >"cost of living." > >Jim Devine [EMAIL PROTECTED] & http://bellarmine.lmu.edu/~jdevine > >
