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Is the Bank of Canada making things worse?
(www.cbc.ca)
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this post was submitted on 15 Jul 2023
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Makes sense. Inflation is trying to determine the value of currency as you can't just ask how much a dollar is worth. Of course, a dollar is always worth a dollar! Which means nothing as we know a dollar today isn't worth the same as a dollar yesterday. Thus, CPI becomes the proxy.
If a luxury item becomes more valuable, then you're no longer measuring the change in value of the currency, you're measuring the change in value of that item. It can never be an exact science, but if one thing jumps by 50% when nothing else has, there is extreme confidence that it is not the change in value of the currency that resulted in the change in price and it stands to reason that you would want to eliminate it from the calculation.
It's not meant to measure inflation. It's supposed to measure the cost of consumer goods, but instead they say it's about "overall cost of living" to justify the manipulation.
Because consumables are what are frequently purchased to be able to observe inflation taking place.
It wouldn't make sense to track houses, for example. People only buy those once, maybe twice in their life. You would have no idea how their perception of the value of the dollar is changing watching that.
But it doesn't make sense to change the basket from having 7 portions of meat to having 3 portions of meat and 4 portions of tofu (example pulled out of my ass, but the principle is the same as what's being done). That's what people do because of inflation to reduce their spendings, it still means that the number reported has nothing to do with real inflation.
Real inflation/deflation is the variation of price of specific items over time. You could absolutely check inflation of housing by comparing the price of thousands of houses that respect some criterias over time without changing the criterias.