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Saturday, March 13, 2010

Chained Consumer Price Index C-CPI

Economic theory is once again threatening your financial health. It is called Chained Consumer Price Indexing and it is stupid beyond belief. The economists behind it are trying to reduce the effects of inflation on your income. Without any evidence whatsoever, they propose that inflation doesn't really affect people very much because when confronted with increasing prices, consumers simply trade down to some cheaper substitute. When asked why they don't bother to find out what people actually do, they say it would be too much trouble and cost too much.

They say that when consumers find that steak house prices are higher than they used to be, they go to McDonald's instead. That is incredibly stupid and uninformed. Researchers who study how consumers actually behave tell a completely different story.

Here is what consumers actually do when confronted with rising prices. Let's use eating at a steak house restaurant for demonstration purposes.

81% make an effort to find a less expensive version of the steak house they usually frequent.

73% just eat out less often, but at the same restaurant.

49% search for a lower quality steak house (Mickey D?).

You might think that this has nothing to do with you, but you would be wrong. Check to find out how much of your income is indexed to the CPI.

The wack job economists are at again with their no evidence theories that actually hurt people.

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