Simple economic model.

[dealtn]

So inflation = 10% is it not as simple as that ?

No.

You are only looking at a single item of expenditure and not considering what the reminder is spent on. How is demand, and price, adjusting to the change in price of energy? Inflation is, and always will be, a macroeconomic measure.

If this is hard to imagine consider what your model would be if average income was only £1,100 per month, with £1,000 spent on energy. Energy is quite "inelastic" - which is to say price changes don't change demand by much. People are either unable, or reluctant, to use less as the price rises. So there is originally £100 left over each month to buy "other stuff". After the energy price rise there is nothing left to spend on "other stuff". What happens to the price of "other stuff"? What is its inflation rate?

To properly measure inflation you need to measure a number of things, and adjust the basket, and take into account substitution effects.

For most people they won't describe inflation as a "simple model".

[scotview]

To properly measure inflation you need to measure a number of things, and adjust the basket, and take into account substitution effects.

And what improvement on accuracy would that give 0.02% ?

One of the problems with inflation is that substitutions are allowed.

[dealtn]

To properly measure inflation you need to measure a number of things, and adjust the basket, and take into account substitution effects.

And what improvement on accuracy would that give 0.02% ?

One of the problems with inflation is that substitutions are allowed.

One of the problems with some measures of inflation is that substitution isn't allowed.

Seriously, do some reading and don't just throw a random 0.02%. if you want a genuine discussion I am happy to engage, but flippancy isn't an endearing encouragement. This is a serious Board after all.

Under the scenario I presented 1/11th of previously bought items would now have zero demand. You think that would barely affect their price? 10/11 have gone up by 10% and 1/11th possibly fallen by 50%, that wouldn't be a 9.98% inflation rate I suspect on any model. The effect of dramatic drop in demand on 1/11th of the economy wouldn't be of concern to the public, politicians, or macro-economists, you think?

[scotview]

but flippancy isn't an endearing encouragement. This is a serious Board after all.

Sorry, I really didn't mean to be flippant.

I am just putting out an idea to see if some bright spark(s) can add value to it.

Possibly (probably) it's a non-starter but at least it's worth asking the pool of financial intellect of this board.

Simplification is difficult.

[dealtn]

Simplification is difficult.

Exactly. Which is why the previous analogy of comparing macro-economics to the workings of a human body is a good one. Few will genuinely know or understand how it works.

For most a simple "food in, energy out" is sufficient. Similarly "demand up, prices up" or "money supply up, inflation" is sufficient. Crave more technicality or precision of knowledge, and you lose simplicity (and probably most people) quite quickly.

[vand]

Austrians and their ilk use deductive reasoning as the basis of their models, rather than empirical observation and econometrics used by today's Keynesians and monetariests which, at best, can only tell us correlation and never causation.

I think you will find the vast majority of the profession disagreeing with you regarding correlation and causation. Most will know the difference and do predict and measure causation in their models. Even macroeconomists understand microeconomics.

If you mean that everything bad that happens is caused by factors out of their control and everything good is due to their economic policy then you may be right.

[dealtn]

Austrians and their ilk use deductive reasoning as the basis of their models, rather than empirical observation and econometrics used by today's Keynesians and monetariests which, at best, can only tell us correlation and never causation.

I think you will find the vast majority of the profession disagreeing with you regarding correlation and causation. Most will know the difference and do predict and measure causation in their models. Even macroeconomists understand microeconomics.

If you mean that everything bad that happens is caused by factors out of their control and everything good is due to their economic policy then you may be right.

No I don't mean that.

Further I think you are again wrong in that economists don't implement or manage policy or have responsibility for the "things" that happen, good or bad. How you have leapt from intangibles such as correlation/causation to "things" and good/bad has stretched my comprehension I am afraid. What exactly is your point or argument here?