Ch. 11 Reflection: Measuring the Cost of Living

1.             How much can someone change the rate of inflation they face by changing what they purchase? Is this a serious overestimation problem with the CPI? Do you time your purchases around sales? Do you change your purchases because of sales? Since housing and services like haircuts vary greatly depending on where I choose to live, I still need those services everywhere I go, so I will not be able to change the inflation rate of what I purchase depending on where I choose to live or what I choose to purchase. I think that CPI gives us a pretty good idea of inflation rates. I do time my purchases around sales, so that will give me some advantage over current retail prices but since I consistently shop sales every year, it will not change the amount that I spend each year relating to inflation. I do spend more money, more often when I see sales, but that has been pretty consistent in my adult life. The biggest change for me is how much I spend when I am working versus when I am unemployed. When I am unemployed I tend to purchase fewer items that aren’t necessary.


2.       What about the distortion caused by improvements in goods? Do you think that is a serious problem in measurement? Back in the 1970's my Dad purchased an early calculator.  It handled addition, subtraction, multiplication, and division. It cost nearly $100.  Phones have a similar challenge as do cars and even airport bathrooms.  If your raise last year was 2% and inflation was 2% did you break even? Or did your life improve? Improvements in a good’s quality or capability should be considered in the CPI. As shown in the article about iPhones, goods can improve significantly over a short period of time and will influence buyer’s decisions to upgrade for the added benefits even if the price remains the same. This tendency can be categorized differently than purchases of clothes which are often purchases for fashion reasons over improved quality or capability. If my income raises 2% and inflation raises 2% as well, then my purchasing power remains the same and I am no better off. In fact, all wages should increase with inflation, but is not always the case, hence in some cases we are worse off than our parents and grandparents when it comes to wages in relation to inflation.

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