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Less than 2 %
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3.01 - 3.75%
3.76 - 4.75%
Greater than 4.75%

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2old,

There is an interesting article about the Consumer Price Index on the Journal of Indexes website (http://www.journalofindexes.com/contents.php?id=480&PHPSESSID=03d09baf692ec1d0d9bd0450c26bda99). It is a pretty interesting read.

JLP

http://AllThingsFinancial.blogspot.com
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I use the recommended standard, 3%.

Fuskie
Who figures Alan Greenspan giveth, and Alan Greenspan taketh away...
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Great article JLP.

I found this particularly interesting:

Each year, the government uses the CPI to make cost-of living adjustments (COLA) to Social Security, military and federal pensions and food stamps. They also use it to finetune the cost of school lunches, to determine the yield on inflation-protected bonds (TIPS), and since 1985, to adjust the federal income tax structure to prevent inflationary tax bracket creep.

When I created my 'retirement needs' spreadsheet, it occurred to me that $40K/year today could very well be $140K/year in 40 years, and I wondered if I'd die in the top tax bracket! :0

Like substitution bias, the idea of quality bias makes sense. Many of the products we use each day are getting better: cell phones get smaller each year, TVs today have better pictures than when I was a kid, cars are safer, etc. To the BLS bureaucrats, paying more to get more doesn't represent inflation. It represents choice. The BLS even has a very complicated statistical technique with a fantastic name—“hedonic regression”— to determine how much of a product's increase in price is related to quality and how much is related to inflation.

I think that this reasoning proves faulty due to the fact that for the most part you can't buy 'new' outdated technology, so how can it be a 'choice'? For example, if my TV dies 15 years from now, will I still be able to buy a big-box, non-plasma, non-HD, non-flat, 19" TV? Probably not. So, the replacement is really not a 'choice', but a necessity, on which the additional quality might be realized, but is not necessarily needed or wanted.

This part was amusing:

Coffee, 100%, Ground Roast, Per Pound: CPI Price - $2.878. My price $8. Comment: This one's a doozy. Did these CPI guys sleep through the Starbucks revolution? I don't know anyone who's paying $2.878/pound for coffee any more. Even Folger's rings the bell at $3.59/pound at my supermarket.

Do you think those BLS shoppers might not have noticed that the can was downsized from 16 oz. to 11.5? ;-) $2.878 is close to what I usually pay for 11.5 oz of Maxwell House, except when it's on sale for 1.99!

Thanks for the response and the link,

2old
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As can be seen from investinginstuff's post, the cost of housing is a critical factor in determing the CPI, because it is over 40% of the index.
Apparently this cost is based solely on renting, not on ownership of housing. The latter would probably give much greater increases in the CPI.
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>> As can be seen from investinginstuff's post, the cost of housing is a critical factor in determing the CPI, because it is over 40% of the index. <<

Not for retirees, IMO. Yes, many own their own home free and clear, which helps.

BUT if you're FIREd and you likely have to deal with your own health insurance, it's arguably understated. And don't forget escalating property taxes for many folks. Until you're 65 in most jurisdictions (don't get me started), you don't get a break on those and they tend to rise more than inflation overall in most places.

#29
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