Economist says inflation
measurement inaccurate
By TOM VISOKY
Ot tw Emaratd
Measuring inflation is a tricky
business because - like all
forms of measurement — the
final figures depend on whose
yardstick is used
According to Jack Triplett of
the U S Bureau of Labor Statis
tics, economists have not yet
decided on a suitable yardstick
Triplett, an expert in measure
ment economics and a former
University professor, addressed
the question "How should we
measure inflation'?" at a Wed
nesday campus seminar
Currently, inflation is mea
sured by calculating changes in
either the Consumer Price Index
compiled by the BLS or the Per
sonal Consumption Expendi
ture index compiled by the
Department of Commerce
Triplett said BLS measures
inflation by gathering reams of
information on the prices of a
wide range of consumer goods
from steaks and gasoline to
housing These prices are as
signed a specific "weight" and
then are plugged into a formula
to compute the CPI
Triplett noted that the press,
m is efforts to calculate the cur
rent inflation rate, often incor
rectly compares the CPI and the
PCE These indexes use the
same formula, but they assign
different weights to the various
parts of the index he said
In addition, Triplett said the
press often reports a compo
nent of the PCE index known as
the implicit price deflator” as a
measure of inflaton
"But that deflator really has
no meaning he said
The implicit deflator in the
PCE index only tells the differ
ence between current prices
and those of the 1972 base year,
he said
To illustrate the differences
between the various indexes
Triplett pointed to the effects
housing costs had on the final
figures
In the PCE index and one CPI
index housing costs are cal
culated on a "rental equi
valency" basis, he said That
is, the costs of owning a
single-family house are based
on the average current rental
value of all single-family houses
In the official CPI index, Tri
plett said, housing costs are
calculated on a "user cost" ba
sis that includes such things as
maintenance and depreciation
costs, as well as monthly mort
gage payments
"These two alternative ways
of treating housing make quite a
bit ot difference in the index
ing,” he said
Triplett said that during most
Photo by Erich Boekelheide
Jack Triplett, an economist with the U S Bureau of Labor Statistics,
said at a Wednesday seminar that current formulas used to
measure inflation are inaccurate
of the 1970's the differences in
computing housing costs
amounted to a variation of less
than 1 percent in the index
figures
However, in recent years the
"housing effect” has lead to a
variation of more than 2 per
cent
"It has distorted the indexes
considerably in the last few
years," he said
While admitting that both sys
tems have their drawbacks, Tri
plett said he favors the rental
equivalency method because it
has fewer unstable components
than the user-cost method
Triplett said massive swings
in housing prices caused by
speculation, combined with
other volatile variables makes
the average cost of owning a
house difficult to compute
"It's conceivable using a
user-cost index that you could
get a negative cost for living in a
house," he said
In addition to the discrepan
cies caused by the housing ef
feet, some economists point out
that the indexes' different
weighting systems are unable to
account for changes in con
sumer's buying habits, Triplett
said
For example, he noted that
because of a drastic increase in
price people are buying less
housing, sirloin and gas ”
"But the index doesn't take
account of substitution,” he
said
Nevertheless, Triplett said
that weighting differences have
a minimal effect on the overall
figures
Triplett said that the BLS is
considering making changes in
its indexing system to make it
more efficient But because a
number of organizations such
as labor unions and government
employers use the CPI to make
their own calculations and ad
justments for inflation, those
changes will be slow in coming,
he said
“We don't slip in changes in
the middle of the process.”
I elescope needs repair work
The University's Pine
Mountain Observatory is in
need of financial aid again —
this time to help pay for repairs
of its 32-inch diameter teles
cope
James Kemp, a University
physicist and researcher at the
observatory, is trying to raise
$7,600 to repair the largest of
the three mam telescopes at
Pine Mountain Last spring
Kemp was involved in a battle
with state legislators to renew
the observatory's $25,000 oper
ating budget
Pine Mountain Observa
tory, located 36 miles southeast
of Bend, is acknowledged by
local scientists as the best as
tronomical facility in the North
west Since 1967 it has served
as both a research site and an
educational tool for school
groups as well as amateurs
According to Kemp, a
bearing went out in the drive
system of the telescope, and the
instrument has been returned to
the makers in Richmond, Wa
shington The company plans to
not only repair the damage, but
also to modify the structure so
that similar mishaps will not oc
cur in the future
Kemp says he was author
ized bs the University to raise
funds for the telescope So far,
he has collected about a third of
the money needed from
individuals and businesses in
central Oregon
Donations for money to
repair the telescope can be sent
to the Pine Mountain Fund in
care of “U of O Foundations ”
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