Why did the U.S. Consumer Price Index become pseudolinear after 1980?

773 views

I’m an econ college student, and I just can’t wrap my head around it. An inflation index should be exponential, and it looks like it is until 1980, then it just…planes off. In order for a linear CPI to make sense, inflation would have to be constantly decreasing and that just doesn’t make any sense to the experience of the average consumer.

Edit: here’s the series in question.
https://fred.stlouisfed.org/series/CPIAUCSL

In: Economics

5 Answers

Anonymous 0 Comments

> inflation would have to be constantly decreasing

Inflation has been constantly decreasing. If you look at the average inflation by decade you get:
80’s = ~5.5%
90’s = ~3%
00’s = ~2.5%
10’s = ~2%

Anonymous 0 Comments

Are you sure that what you’re taking as the index isn’t actually the index’s derivative? Usually in addition to the actual index (sometimes even instead) the rate of increase/decrease is published.

Anonymous 0 Comments

Manipulation?
The items used to measure CPI has changed over time. Think of switching out butter for margarine.

Anonymous 0 Comments

the “market basket of goods” used to define the CPI isn’t what you think it is.

The components that go into it, and the relative weights used in it, are changed all the time to reflect the Fed’s intent. Using it as a true unbiased measure of inflation isn’t ideal.

Anonymous 0 Comments

The CPI numbers are no longer tied to the real cost of living, they are a political statement to keep the peace and not a measure of inflation.