Thursday, January 20, 2011

Find the Fallacy #2

A nameless, but certainly entertaining, news commentator recently began his show by stating, while eating a giant bowl of ice cream, that he couldn't believe the experts about inflation but he could believe his gut.  He loves ice cream and a year ago he could purchase this ice cream for $2.19 and now it is selling for $3.69.  This is a 68% increase.  Our country is being hit by double digit inflation!

Fallacy or not?  If so, what is it?

My answer is yes; improper definition or calculation of inflation rate.
Many of us have our own method of determining the rate of inflation.  The government has several, of which the CPI is probably the best known.  All the methods are at best only partially correct and some are just downright misleading.

I learned about the complexity of the CPI when I needed to write a lease with an  "inflation adjusted" rate.  I thought it would be a simple matter of going to the library and looking up what the inflation was for the current year and adjust the rate.  (Yes, we're talking pre-Internet here.)  I found there were many different definition based on "market baskets" whose composition might vary by time and location.  But surely they'd all agree in the long run, I thought.  Wrong again.  See Wikipedia http://en.wikipedia.org/wiki/Consumer_price_index for a more complete explanation.

As for our news commentator, I think he should stick to reviewing flavors, not prices.

1 comment:

  1. The CPI covers only "core" things, not "volatile" ones like food and energy. But everyone I know needs to eat and needs to use energy for heating and cooling, even if they decide to not use gas by bike riding or walking. And when energy goes up, all transportation costs go up and lots of manufacturing costs as well. So eventually everything costs more. I personally think a lot of government definitions/statistics are misleading, and a lot of current unhappiness with the state of politics is the way things are being presented to us versus the way we actually have to cope with things as they are.
    Marilyn

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