Reader Bruce Hall disparages the use of the PCE deflator for deflating…PCE (Personal Consumption Expenditures) from the NIPA. OK, it’s true that the PCE deflator uses business facing prices, rather than consumer facing prices. Mr. Hall suggests using the CPI. But that has different weights. (It doesn’t make sense to apply a price index with CPI weights to an aggregate with PCE weights — read some price index theory if that is confusing). What to do? What to do?
Gee, check FRED. OK, read an eensie, teensie amount of the literature, and discover there is something call the market based PCE (chain-type price index) which uses consumer facing prices (CPI), but at the same time uses PCE weights. What do we then get (compare against using PCE deflator in this post)?
Figure 1: Consumption per capita in Ch.2017$ using PCE market based weights, calculated using consumption divided by population (blue), and 2016-19 (stochastic) trend (tan). NBER defined peak-to-trough recession dates shaded gray. Source: BEA, Census via FRED, NBER, and author’s calculations.
Well, lo and behold! Per capita consumption in March was 2.0% higher than 2016-19 (stochastic) trend (compared against 1.2% using the figure reported by BEA using the conventional PCE deflator).
After years of blogging and reading comments, I now understand that — despite the great ease of access to databases, and widespread explanation for how indices are constructed — there is a very high correlation between commentators making unsubstantiated claims and ignorance of the data. If only people somebody would invent something that compiled in a systematic fashion a corpus of basic knowledge regarding such things…maybe call it a textbook! And maybe if people actually read such things, before commenting, we’d actually have progress in the world.
Marvelous. I had a giggle fit.
Declare that a single month’s inflation differential is “persistent” – such a precise choice of word, and wrong as well. Generally wrong is one thing, but precisely wrong? That’s motivated wrongness.
Demand that the inflation measure which is clearly inappropriate – the “PCE” in PCE deflator is pretty obvious – because it makes things seem worse, on the excuse that “it’s what people pay”. Careful what you wish for.
Spewing “alternative facts” simply because they suit you is trademark faux news behavior. So I guess we know who spends his days in front of faux news.
Hey – Kudlow the Klown was Trump’s chief economist so maybe Brucie thinks his BS is a career path!
” there is a very high correlation between commentators making unsubstantiated claims and ignorance of the data. If only people somebody had would invent something that compiled in a systematic fashion a corpus of basic knowledge regarding such things…maybe call it a textbook! And maybe if people actually read such things, before commenting, we’d actually have progress in the world.”
Ignorance of the data and basic economics is a feature of being a MAGA moron. Remember when Newt Gingrich took over as Speaker of the House? He tried to dismantle all forms of government expertise so he could push through his right wing agenda. Trump is Gingrich on steroids and trolls like Sammy, CoRev, JohnH, Princeton Steve, and yes Bruce Hall are soldiers in the cause of Trumpian disinformation.