CPI Increases Don't Always Mean Inflation

Hat tip to Prestopundit for this story by Virginia Postrel in the NT Times, which explains that the CPI, while one of the standard metrics for economic inflation, is calculated through an inexact science. The biggest problem is that the measure doesn't always take into account changes in the quality of products or services.

"Quality change has typically been considered the least tractable problem associated with the Consumer Price Index," the National Research Council said in 2002 in a report on cost-of-living and price indexes.

Though businesses and government treat it as a hard number, the Consumer Price Index is not a fact of nature like the atomic weight of lead or the speed of light. It is a statistical construction that requires a lot of judgment calls.