Prices Cannot Measure Inflation
There are:
a) Only upward forces on prices
b) Only downward forces on prices
c) Both upward and downward forces on prices
Correct Answer: C
Currency debasement, taxes, regulation and other disruptions to supply chains push prices up. Entrepreneurs who aren’t colluding with the state wake up every day trying to find ways to bring prices down. Don’t believe me? Consider as one example how expensive flat screen TVs were upon their first release.
Yet, we equate the net effect of the two forces, which manifest in the movement of prices, with the upward forces, which we label inflation. This is a false equivalence.
The CPI, flawed as it already is. Measures the net effect of the upward and downward forces because it measures prices. It does not measure just the upward forces.
The result is that we always get an understated CPI, even if you want to argue that its methodology is perfect. This is because the magnitude of net price movements is always smaller than that of the upward forces acting upon them.
submitted by /u/SkillGuilty355
[link] [comments]