There are multiple types of inflation. Asset inflation is what your parent is talking about, which is not well reflected in the CPI.
Any product/service with domestic labor as a primary input (healthcare, education, childcare, construction, professional services) has seen much higher inflation.
This might help. Idk enough about the topic to really interpret this in a helpful way.
"When people talk about inflation, they usually refer to ordinary goods and services, which is tracked by the Consumer Price Index (CPI). This index excludes most financial assets and capital assets. Inflation of such assets should not be confused with inflation of consumer goods and services, as prices in the two categories are usually disconnected. The prices of some goods and services such as housing, energy, and food do track closely with some financial assets."
CPI might not be high, but inflation can show itself in different places. Asset inflation has been increasingly high since 2019, which is clearly visible in stock market, real estate and commodity markets. Similarly, construction materials are up significantly.
It may or may not show up in consumer prices eventually.
> Inflation has occurred outside of CPI basket, most notably in equity markets and real estate prices in large urban cities
Those are assets rather than goods. They are neither produced nor consumed. That being said, yeah, it's no mystery that low rates have caused asset price inflation, not consumer price inflation.
CPI is only one measure of inflation. For example, substituting housing price index for owner equivalent rent raises the CPI a lot recently.
Look at asset prices, they are going up very fast (historically). Or healthcare or higher education, they have been growing faster than CPI for decades with fiat money. You have to look at who has the newly created currency, and where they spend to see the inflation (gov't, high wealth, and upper middle).
> When you break down CPI, the inflation is almost entirely on the back of rising mortgage interest costs.
This is only true recently as the interest rate hikes took a while to filter down to actual mortgages and then make it into the CPI numbers. Prior to that, groceries were a huge component of inflation.
CPI includes all of those things. Can argue with the measurement and the composition of the basket, but real inflation isn't much higher than CPI. Asset price inflation on the other hand....
> When food also starts outpacing the average (historically it has paralleled wages in the USA), you really have to ask what inflation is measuring.
inflation is measuring the value of a currency. CPI is a way to infer inflation from the nominal price of consumer goods; but it is not the definition of inflation. put another way, if an apple costs twice as much as it did last year, that fact is not enough to say whether the currency inflated.
Inflation as it's being used in this conversation and in general is measured against a specific currency. I mean you could, I suppose, use the term to measure the cost of a specific asset against a basket of other assets, but that is not really standard and if you wish to use it that way you should qualify your usage as such to avoid confusion.
Using your approach you'd end up saying something like Apple is experiencing inflation because its price has gone up more against housing, oil, General Electric stock. Yeah, that could be done, but it's not the way the word is being used in this conversation. We're talking about inflation of US dollars against a basket of goods as measured by the CPI as opposed to talking about an increase in housing costs relative to Apple stock.
The most commonly referenced measure of inflation is the Consumer Price Index, tied to the increase in price of a "market basket of consumer goods and services." The BLS chooses sample goods/service in categories like housing, medical care, apparel, etc.
I believe the core CPI figures leave out food and energy, since their prices are sometimes more volatile. So, the CPI does include healthcare and education, but I suppose those price increases must be outweighed by price decreases in other sectors.
[edit] In addition, there are "weights" for goods in different categories. Ex. in the document I found from 2013[1], the weights add up to 100, with housing-related items having a total weight of ~41.4. Healthcare is 7.5 and education 7.0.
So, the actual CPI numbers are somewhat manufactured. The weights correspond to what the BLS predicts the average family spends, proportionally, on those different goods. If your expenditures don't match those proportions, you will "feel" inflation at a different level in your own purchasing.
_Inflation is higher for the things they purchase_
I don't agree with this. The Consumer Price Index is how we Americans typically measure "inflation" which measures the change in retail prices of a "market basket" of goods from period to period. The Bureau of Labor Statistics goes to great lengths to determine this market basket. You are essentially saying that the BLS is favoring a higher income basket over a lower income basket and if they focused on the latter, CPI would report much higher inflation. I don't think this is true. CPI is far from perfect, especially if you introduce Austrian definitions of inflation, but I think they do a good, consistent job. Here is a BLS description of market baskets.
http://www.bls.gov/cpi/cpifaq.htm#Question_6
I agree with others who replied to your comment that hypothesize this dynamic is the result of a disproportionate impact to a low income household's bottom line from price inflation. This essentially the concept of operating leverage applied to households. Assume a typical family needs to spend $40K a year to pay for the basics. A $50K household will have $10K left over and a $100K household will have $60K left over. If prices increase by 5% on the $40K, that's now $42K. The $50K household has $8K left over, a 20% reduction from $10K previously. The $100K household has $58K left over, a 3.3% reduction from the $60K previously.
Inflation is a general term for when the nominal price of goods increases disproportionately to the intrinsic or real value.
Inflation as represented by CPI is only one measure of inflation. Just because the Fed uses that measure to drive policy doesn't mean there isn't inflation in other areas of the economy, like housing.
Any product/service with domestic labor as a primary input (healthcare, education, childcare, construction, professional services) has seen much higher inflation.
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