ajtj99's Market Pulse

[jimapplesmith]

There was a long piece either on PBS or on 60 minutes explaining why the CPI is misleading these days. The essences goes like:

-starting from Nixon days, the gov began looking into CPI engineering, and they perfected it in the 90s
-the motivation was to keep the SS commitment within check
-the brilliant idea was to replace a basket of fixed items by a basket of items "people acually buy"
-items going up in price are replaced with cheaper ones every year
-they argue that if the price of levi jeans goes up, people will buy other jeans from walmart, so the walmart jeans is an item that people actually buy and therefore the basket should "reflect" that.

This CPI engineering allows the gov to effectively control the mean value of the CPI by appropriate replacement. The monthly reported CPI is just noise around the mean.