Monday, May 05, 2008

Inflation, deconstructed

This NYTimes illustration of the various components of the CPI (inflation index) is one of the most impressive web graphics I've seen in a while. I suggest you click through and look at the original -- it allows you to zoom in and see the contribution from individual components (gasoline, computers, college tuition, eyeglasses, etc.) to the overall index. Blue regions represent deflation (reduction in prices); reddish regions are strong inflation (the big red blob is gasoline).

One interesting point is that the CPI uses "owner's equivalent rent" to calculate the housing part of the index. This missed the run up in house prices (rents were pretty flat over the last few years, meaning price to rent ratios were very high, a strong signal of a bubble). Had the cost of ownership, as opposed to renting, been factored in, inflation would have been significantly higher in recent years. Of course, most of that will go away now that the housing bubble has popped :-)

See previous discussion here.

1 comment:

Anonymous said...

Why is this graphic better than a bar graph or a horizontal line plot? I think it's worse because it's harder to visually compare two areas than two heights. With a bar graph you can sort the values. See any of the books by William S. Cleveland on statistical graphics.

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