Morton Marcus: Inflation is subject to inflation | Economic news
In September 2021, the consumer price index (CPI) rose 5.4% above the price level of the same month a year earlier. The media have declared an economic avalanche.
That September figure was indicative of what had been happening since the Covid virus moved away from the fear centers of many brains. The figure for September 2021 was unusually high; not once in the past ten years has the September index exceeded 2.3% year over year.
Such a high figure does not mean that the prices of what you are buying have risen by 5.4% or will rise by that amount in the near future. Likewise, the prices of individual components of the CPI may rise or fall; they don’t move at the same time.
Take a trip with me to the grocery store. Good bread (not that dough that replaces real bread) increased 2.8%. The peanut butter that we will buy is priced 6.2% higher than the previous year. But bread and spread both saw increases 2% lower than the increases in 2020.
If we add roasted coffee to our basket, the prices are 4.3% higher than a year ago. But knowing you, let’s add beer to our purchases; the price is up 3.3%. Yes, I see the whiskey section, and there the prices only increased by 1.4%.
Let’s not forget the pet food. These vital Petals and Bluster vittles are now 1.6% more expensive, after dropping 0.8% in 2020
On the way back we will stop for gas which has risen 43% in price, but remember gas prices fell 16% last year. Advertised tires have now increased by 8.3% after dropping a little (0.6%) in 2020. Ditto for your car insurance. It is up 4.8% this year after falling 5% a year ago.
When we get home, I bet my wife will be at her sewing machine working on some nice fabric; these prices have fallen this year by 10%. I didn’t buy a new TV this year when prices went up almost 13%, but bought one last year when prices dropped 11%.
Of course, 2020 was far from a “normal” year. With incredible demands on the healthcare industries and historically high injections of money from the federal government, the prices were less than their usual significance. Thus, it is equally difficult to interpret the price changes in 2021 when the prices of prescription drugs fell by 1.6%, the prices of dental services increased by 2.3%; hospital services up 3.2% and physician services 3.8%.
Inflation depends on what we buy and when we buy in response to price changes. The danger is that consumers and businesses will insist on sticking to the habits of the past. Then engage in panic buying, a contagious economic disease, which drives up prices.
Morton Marcus is an economist. Contact him at firstname.lastname@example.org. Follow his and John Guy’s opinions on Who Gets What? wherever podcasts are available or at mortonjohn.libsyn.com.