YEP: Inflation quality adjustments were always tricky. COVID-19 broke them. “What if used cars aren’t an outlier? The price of used cars today is more than 40 percent higher than it was a year ago. There is a very simple story for this inflation: demand for cars remains high, but the supply of new cars has been constricted by an acute shortage of the computer chips used in the electronic systems. This is clearly an outlier in the data, a fact the White House, eager to combat bad news, has highlighted. They have also constructed inflation data removing cars and other outliers. This approach gives me pause. As we saw above, cars are one of the easiest products to value objectively. The same properties that make it easy to measure auto quality in normal times make it obvious what kinds of strains the market is facing in these difficult times. By contrast, changes elsewhere⁠—even just in new cars⁠—might be a bit more subtle.”

Plus: “If the official statistics miss quality changes and therefore understate recent inflation, then using those statistics for inflation adjustment will lead us to overstate progress in measures like real GDP per capita or real consumption per capita.”