Remember when gas was $3.00/gal? (The Truth about Inflation)

badshotbob · 08-09-2006, 01:31 PM

I remember when gas was under a buck a gallon. I remember when it rose above a buck fifty. When gas was in that two-buck range? I don"™t remember that much with exception to the $2.95 per gallon clinging to service station signs like a teen clings to his first nudi-mag. Finally after two long months of prices hovering at $2.99/gallon, something sent those prices up beyond the three-bone mark. I"™m sure soon we"™ll all be wishing gas was only three bucks a gallon.

One of Grandpa"™s fondest memories was that of being able to buy a hamburger, cup of coffee and a piece of pie for a nickel. In his 84 years the man saw many price increases, but was it all relative to "œthe times" and proportional to income? I"™m not sure.

What I am sure about is that many folks are being misled when it comes to the truth about inflation. Inflation is an increase in pricing, yes? Or better yet, the decrease in the purchasing power of our dollar. So why is it that everything is going up except our salaries (proportionally I should say). Why is it that a Â¾" x 10"™ stick of copper pipe costs $30 when it only cost $10 when I built my home four years (the Chinese of course, but that"™s a different thread)? Is a 300% increase par for normal inflation in a 3-4 year period? How about that bag of salt for my water softener that ran $3.00 a few years ago that now will hit you at $4.59 a bag? Normal? Why are they telling us that inflation is at an all-time low when in fact, it"™s higher than it has been in quite some time?

Currently, inflation rates are not figured for accuracy, but rather for positive reporting. The Bureau of Labor Statistics throws out entire categories, or sections of categories such as energy and education. The CPI core is a measure of inflation sans food and energy. You think oil has increased at all in the past four or so years? Why is it that oil (and most commodities) is excluded from inflation calculations then? Along with energy and other commodities, education and health care expenses have outpaced median inflation.

What about housing? The way housing expenses are figured in by the BLS, housing actually lowers inflation readings. After 1983, BLS started using a concept known as "œowner"™s equivalent rent", which essentially measures what a homeowner could get for their homes if they rented them out. Since housing has soared, rental properties have lost a large share of the market (the reason those apartments are being converted into condos) thus pushing CPI measures down.

I"™m not an economist by any stretch, but have enough sense to step back and question things. The answer? Not sure. Buy gold.

CalHunter · 08-09-2006, 01:50 PM

The cost of gold is going up also.[8D]

HuntingEd · 08-09-2006, 01:51 PM

Inflation is just an excuse to raise prices. Its caused by the Federal Reserve. In a truely free economy there would be very little to no inflation. Ive never heard a legitimate reason for inflation. It is controlled using the intererst rate so theycanforce people to spend/save in a desired ratio. Unfortunately the savings rate in this country is despicable thanks to0% financing.

The reasone only certian goods are used in the CPI is due to the volatility of the markets and global demand. Its unreasonable to look at individual items that change prices as frequently as the weather.

Its all in the "multiplication of money". If you think bout it a bank only has to keep 10% of your money onhand legally. The rest it can lend out. And that happens until all the money is used up. Essentially you put 1000 in the bank, the banks can lend out 9000, with interest. Thus you have your inflation. Inflation islableled the changing in pricesbase on a certian base year, but thats just a way to measure and compare things...

so techinically the rising gas prices are notdue to inflation, but dueto increased demand. Which is the root of pricing. Theglobal demand for oil has gone up, thusdriving up prices. That along w/ the limited production causes your socalled inflation. If it were true inflation our salarieswould be going up in proportion.

I agree, Inflation measures and CPI seems offbase and unbalanced. We are in an evolving economy and economists will admit to you that no one really know's the best way to measure things, everybody has some theories and opinions, and we simply use the most popular method. Its like predicting the weather, we can get it close and accurate most of the time. But we are never 100% right.

Gold would be good to buy if we still operated on a gold standard, but alas the world is greedy and it didnt work very long.

Rebel Hog · 08-09-2006, 01:57 PM

Do I remember? I remember when gas was $.14 a gal at Super Test in 1953.

I also remember when Heating Fuel was $.08 a gal back in the 50's!

vc1111 · 08-09-2006, 02:18 PM

Quote:

Inflation is just an excuse to raise prices. Its caused by the Federal Reserve.

*shakes head

Eddie, Eddie, Eddie.

HuntingEd · 08-09-2006, 02:28 PM

VC - how do you know i go by Eddie?

Here is a goodexplanation of inflation: http://www.bized.ac.uk/virtual/bank/economics/mpol/inflation/causes/expl.htm

"It is also important to look at the role of the amount of money in the economy. The quantity theory of money shows how increased growth in the money supply can cause inflation. This happens because the extra money boosts the level of demand, and so causes demand-pull inflation."

The money supply is directly controlled by the FED.

Ok i'll admit that its not just an excuse to raise prices, but i'll stick to the thought that the fed can cause and stop inflation. They try hard to find a balance betweeninflation and unemployment...Its practically their mission statement.

Using badshotbobs argument for inflation, then we should look at technology, i can buy a processor for mere pennies that would have cost me hundrededs a few years ago... So i think we are having Deflation.

That is the reason only certian goods are used to measure inflation.

badshotbob · 08-09-2006, 02:30 PM

Quote:

Inflation is just an excuse to raise prices.Â* Its caused by the Federal Reserve.Â* In a truely free economy there would be very little to no inflation.Â* Ive never heard a legitimate reason for inflation.Â* It is controlled using the intererst rate so theyÂ*canÂ*force people to spend/save in a desired ratio.Â* Unfortunately the savings rate in this country is despicable thanks toÂ*0% financing.

I'm not sure the Fed wants us saving at the moment anyway (the deliberate devaluing of our money leading to big time recession IMO).

Quote:

The reasone only certian goods are used in the CPI is due to the volatility of the markets and global demand.Â* Its unreasonable to look at individual items that change prices as frequently as the weather.Â*

HuntingEd, I understand what you are saying, however I'm not buying it. I may be wrong and again, I am not an expert on this subject, but a simple moving average method of figuring inflation does only what - avoids disruption in a relatively orderly succession of inflation rates (omitting the spikes for example). Also, how many trillions of calculations per second can a current computer compute? I'd say that there's a way to track the volatile commodities markets.

Quote:

Gold would be good to buy if we still operated on a gold standard, but alas the world is greedy and it didnt work very long.Â*

I still think it's a sound investment.

HuntingEd · 08-09-2006, 02:37 PM

Gold probably is a good investment, its gone up alot lately, even faster than inflation... but its not the best way to lower your investment risks.

Quote:

Also, how many trillions of calculations per second can a current computer compute? I'd say that there's a way to track the volatile commodities markets.

Traking is the easy part, but just know what inflation has occured is like saying yesterday was sunny. It tells me nothing. Trust me if they ever figure out a calculation to predict inflation, then the world will stop turning. Simply the predictions will change the way inflation happens.

Also, the measurement of inflation is based on historical emprical data, i dont know why they use the items they use, but im sure they have good evidence to back it up. (never done any research into this)

vc1111 · 08-09-2006, 03:16 PM

Quote:

Ok i'll admit that its not just an excuse to raise prices, but i'll stick to the thought that the fed can cause and stop inflation. They try hard to find a balance betweeninflation and unemployment...Its practically their mission statement.

Better, Grasshopper.

Start here next time:

http://www.bized.ac.uk/virtual/bank/...s/theories.htm

HuntingEd · 08-09-2006, 05:40 PM

VC - thats the point. There are 5 or 6 different theories and tons of empirical data, but no knows exactly what to do w/ it all. Fortunately (at the time Unfortunately) ive studied all those theories, and the assumptions they make to simplify things are preposterous. I only had a minor in econimcs and while my degree was in biomedical mechanical engineering, i gained a pretty good understanding of econ. Anyway as an engineer if i used the level of assumptions that economists make people would be dying. They say things like "ignoring taxes" or "all else held constant", thatd be like me saying your artificial knee works fine as long as you stay the same weight and dont exercise more than x hours a day. The economy is like the weather, you can only react to it, you cant make it act... Unless your the policy maker, and they have limited power, then we can only hope they do it right.