Back on October 10th I had mentioned constructing an index for myself: Leaves and Liabilities Falling Down This October – Fired to FIRE (fired-to-fire.com) as I’m determined to deconstruct what is actually going in my life and to figure out the way to position myself. This was spurred by concept that people say there’s not really inflation but I look around and house and stocks are going up like crazy. How could this be? Well quite simply real estate and stocks aren’t in the CPI.
What is the CPI? The next two paragraphs I pulled from Investopedia, Consumer Price Index (CPI) Definition (investopedia.com):
The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. Changes in the CPI are used to assess price changes associated with the cost of living. The CPI is one of the most frequently used statistics for identifying periods of inflation or deflation.
The Bureau of Labor Statistics (BLS) includes sales and excise taxes in the CPI — or those that are directly associated with the price of consumer goods and services — but excludes others that aren’t linked such as income and Social Security taxes. It also excludes investments (stocks, bonds, etc.), life insurance, real estate and other items unrelated to consumers’ day-to-day consumption.
I heard something recently that put me over the edge and got me thinking I was on the correct path, to construct my own index. Episode 5 of The Bitcoin Fundamentals, a segment of The Investors Podcast Network, with guest Michael Saylor talks about how inflation is different for everyone.
Inflation ======== Aspiration
If you are dude living in his parents’ basement you may really only care about the price of beer and Tacobell. If you want a house in the Hamptons, maybe the median home sale from the Hamptons should be in your bucket.
So without further adieu, I give you my first insights into the Jack Price Index (JPI):
Some of the prices I’ll have to find systematic ways of looking up. Some of them are dummy values (guesses) for now. I’d like to hear people’s thoughts on this to see if my line of thinking is way off. The weightings are based off of how many times I think I will purchase that item in the next 60 years. I’m going to say I’m going to live to 90 even though I think my life expectancy, as a 31 year old male, might be a bit less. I will normalize the starting amount to one million and record changes over time. This will be my personal inflation rate.
I’d challenge all of you to construct your own price indexes.