The Worst Inflation Index

A blog about business and economics.
April 9 2013 12:04 PM

Here's a Deliberately Inaccurate Inflation Index

Not happy with the Bureau of Labor Statistics' official measures of inflation? Want a much less accurate read on price trends? Then the American Institute for Economic Research has what you're looking for, an Everday Price Index that shows inflation is much higher than the official CPI shows.

The only problem with the EPI is that it's wildly inaccurate. The reason is that some things are purchased more frequently than others. A typical family, for example, buys gasoline and groceries more than once a week. By contrast, most of us go years at a time without buying new furniture or major appliances. Mobile phones get upgraded every year or two or three, computers get upgraded less frequently than phones, and televisions get upgraded even less frequently. This tends to introduce a psychological distortion into people's thinking whereby they overweight the importance of items that are purchased frequently, and forget that other kinds of things—cars, appliances, clothing—are large elements of the overall household budget. Focusing too much on frequently purchased items can both lead you to overestimate inflation and to overestimate the variability of inflation.

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So what does the EPI do? It attempts to measure the prices exclusively of things that are bought frequently! Instead of using statistics to correct intuitive misunderstands, now you can use them to reenforce your misconceptions. Delightful.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.