Wednesday, August 19, 2015

Three? Make that four

There it is. Mid-June of this year. I thought it was recent, but not that recent.

Three measures of inflation:

Graph #1: Three Measures of Inflation: CPI, the GDP Deflator, and the PCE Index

I knew about the Consumer Price Index and the GDP Deflator for a long time. I still have photocopies of Statistical Abstract tables from the early 1980s. (They cost 25 cents apiece, at the library.) But I never heard of the PCE price index till just a few years ago.

Now the other day, I read Brian Romanchuk's response to Nathan Tankus. Romanchuk writes:

Yes, economists who argue that "inflation" reduces the burden of debt are using consumer price inflation as a proxy for "generalised inflation" (which I describe below). This is technically incorrect. But as the chart below shows, there's a fairly strong correlation between CPI inflation and wage inflation, for very good reasons

What follows is most interesting. "A divergence between the two has implications for the wage and profit shares of national income," he writes. I won't quote any more of that; if you missed it you should definitely go there and read it.

So anyway, Brian Romanchuk's chart compares consumer price inflation to U.S. wage inflation. For wage inflation he uses "average hourly earnings". Something I never thought of, to be sure. But I like it.

So I picked two series out of the 267,000 FRED offers, and managed to satisfy myself that I had duplicated Romanchuk's graph:

Graph #2 (After Romanchuk) Earnings = FRED AHETPI and CPI = FRED CPILFESL
He didn't identify his data. But I got a good match by using AHETPI and CPILFESL.

Now I have four price series to look at:

Graph #3: Four Price Series
I don't usually use price series that exclude food and energy prices. To me it doesn't make sense. But that's what Romanchuk used, so I went with it for this graph.

By the way -- on that last graph, the green line runs with the low group in the 1980s, then accelerates up to the higher line and even goes above it after 2010. That line shows the fastest increase of any in the last 25 years.

That line is Average Hourly Earnings, the one I got from Romanchuk.

If you happen to be a Nathan Tankus fan (I am not) you might want to follow up on this with Brian Romanchuk. Wages are going up faster than prices? Is that with or without benefits? Either way, how can it be? Why doesn't Romanchuk point it out? and Was there no more realistic series he could have used to shoot holes in Nathan Tankus's post?

1 comment:

Greg said...

Heres the last thing I want to say about this whole topic for now Art and It has to do with the utility of thinking about things in this manner.

If you go to and choose a starting year of 2013 and an ending year of today you can determine what a dollar would buy then vs now. What you come up with is that today it takes 24$ to buy what cost a dollar in 1913. Sounds pretty scary doesnt it. Someone must be doing something to our dollar! Those poor savers! But now consider this; the average return on US 30 yr Treasuries has been about 3.5%. So to figure out what a dollar saved in Treasuries in 2013 and rolled over til today would be worth take 72 and divide by 3.5 and you get 21. Which means your dollar will double every 21 years. So in 1934 you would have 2$, in 1955 youd have 4$, 1976 youd have 8$, 1997 youd have 16$ and by 2018 youd have 32$. Doesnt sound like the saver got punished all that bad after all.

Our problem is not what we are doing to our money through "inflation" its what we are doing to our distribution through propaganda, theft and fear mongering.