Skimpflation: A reason inflation is worse than the government says it is
Skimpflation is one problem with CPI -- falling under the umbrella of somewhat arbitrary hedonic adjustments. But the main problem is more fundamental.<p>CPI is calculated by surveying what a bunch of median Americans bought, and weights it by HOW MUCH OF IT they bought. For example, the weight of gasoline oscillated ~100% from its low from 2003-2007 because oil prices increased significantly during this time (median Americans drove less&#x2F;bought more fuel efficient cars). And therein lies the problem. If you poll the median, and the median tends to spend all of their money (just reallocating it according to priorities), what you are really measuring is the median household budget. Which is why any chart of &quot;real wages&quot; is a flat line, which is obviously not accurate.<p>So CPI is a load of crap. Real inflation over the last 40 years has probably averaged closer to 3% (see the Big Mac index) than the &lt;2% quoted by bureaucrats and politicians. To improve it, they could look at the 1000 highest volume items in the economy and measure changes in prices of those. Many of those are raw materials, so this would make hedonic adjustments a bit easier, too.