Author Topic: burrito index update -- real inflation vs official index  (Read 481 times)

Offline mountainmoma

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burrito index update -- real inflation vs official index
« on: April 22, 2019, 12:19:36 AM »
I was visiting a friend today, and we got talking about the extreme jump in gas prices this month, which led us to contemplate the price increases and real inflation we see in our lives and reminded me of the burrito index

I dont know if anyone posted in the past about the burrito index, which is one of Charles  High Smiths' indicators of inflation.  He has kept track of the price of a basic burrito at his local spot since 2001.  He finally updated us ( last June, I'm behind times) and at that point the price had tripled since 2001.

https://snbchf.com/2018/06/hugh-smith-burrito-index-burrito-cost-triples-official-inflation-43-2001/

This makes the burrito index 5 times the official inflation index for the same time period.

We were talking about food prices, because we all keep reading about healthcare and education and fuel prices, but food prices do not make the news much.  But, we personally have noticed food going up.  Alot realy.  Bread, butter, dried beans, potatoes, canned tomatoes and soups. Even our local burritos, although they used the other trick and went up some while also shrinking in size. 

My friend and I have college students and we well know his point about college costs

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University of California at Davis:
2004 in-state tuition $5,684
2018 in state tuition $14,463
So tuition at a state university soared 2.5 times while official inflation rose by a mere 35% since 2004. If UCD tuition had only risen by 35%, it would total $7,673, not $14,463. The cost above and beyond what we would expect had tuition tracked official inflation adds up to $27,000 per four-year bachelor’s degree per student. Now multiply that by millions of college students, and you get a sense of the enormity of the gulf between real-world inflation and the official inflation rate of 2.5% annually.


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Here’s what you’re supposed to swallow: big-ticket expenses such as rent, healthcare and higher education cost tens of thousands of dollars more, but TVs cost a few bucks less, and as a result, official inflation is 2.1% annually.
As long as we accept this travesty of a mockery of a sham, we deserve what we get.

The original burrito index essay is here, and this is a more comprehensive essay :  https://www.oftwominds.com/blogaug16/burrito-index8-16.html


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The Official Fantasy of Hedonic Adjustments

In the official calculation of inflation, hedonic adjustments offset soaring costs: that 160% increase in the cost of a burrito is offset by the much lower cost for computers, especially when the greater processing power and memory are accounted for.

Clothing has also gotten cheaper, and this theoretically offsets higher costs elsewhere.

The problem with this is sort of calculation is that we have to eat every day and we have to pay higher education costs if we want our kids to remain in the middle class, but we only buy a new “cheaper” computer once every few years, and we don’t even have to buy new clothing at all, given the proliferation of used clothing outlets, swap meets, etc. (I do my annual clothing shopping at Costco: two pair of jeans for $15 each , one pair of shoes for $15, etc.)

The savings on $100 of new clothing per year or a $600 computer every three years does not offset the doubling or tripling of costs for items we consume daily or big-ticket essentials such as higher education, rent and healthcare.

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median household income is around $57,000 annually.

So if a household’s income kept up with official inflation over a decade, that household would have to earn at least $20,000 more per year just to keep pace with real-world, big-ticket cost increases.

That’s the problem, isn’t it? If the household’s wages only kept up with inflation, there isn’t another $20,000 a year in additional income needed to pay these soaring big-ticket costs. So the shortfall has to be borrowed, burdening the household with debt and interest payments for decades to come, or the kids don’t attend college and the household goes without healthcare insurance.

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Inflation in big-ticket items adds up to tens of thousands of dollars—costs that can’t be offset by choosing a cheaper mobile phone, cheaper clothing  or substituting a peanut butter sandwich made at home for a burrito at the taco truck.

Even if you skip buying lunch for four years, you’ve only offset 1/10th of the cost of a university diploma, a four-year stint in which the student lives at home and also eats peanut-butter-and-jelly sandwiches every day for four years

« Last Edit: April 22, 2019, 12:46:37 AM by mountainmoma »

Offline Morning Sunshine

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Re: burrito index update -- real inflation vs official index
« Reply #1 on: April 22, 2019, 06:51:59 AM »
interesting.  Thank you for sharing