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We Have ‘Low Inflation?' - Really…?

Article

Officially, inflation has stayed relatively low coming out of the Great Recession. But columnist Jeff Brown says in the real world, that number seems grossly out of touch.

Balloons

Inflation is simply the rise in price over a set period of time for a given good or service. So it hurts consumers’ purchasing power. The higher inflation goes, so go prices for everyday things. But inflation helps those in debt, the federal government and students come to mind, because they could pay back what they owe with dollars that have dropped in what they can buy.

So each of us has a direct stake every day in what level of inflation we are looking at. But economists, the Grand Poobahs of the Dismal Science, have a limited, hazy notion of how to measure inflation, how to prevent it and what to do if it rears its ugly head.

The primary tool in current vogue to manage all of this is interest rates, as determined by the Federal Reserve. The idea is that if you lower rates, more money will be borrowed, heating up the economy and the inflation rate. If you raise interest rates, making loans more expensive, you will put a brake on the economy because folks will borrow less for expansion, thereby lowering inflation. All of this is OK, as long as it works.

But, and there is always a but, the definition of what you measure to define the Consumer Price Index (the vaunted CPI) as determined by the US Bureau of Labor Statistics, is highly arguable. They have a “basket” of goods and services that in the last few years at least, seems to have lost touch with reality, as I know it anyway.

According to the venerable CPI, coming out of the Great Recession, we have averaged an annual rate of 2%-ish, thought to be desirable by the Poobahs. Don’t ask them why, at risk of your sanity.

But you will be at a loss to think of much that has risen only 2% per year in your day-to-day life. Where shall we start? College costs? 2% a year? Hah! Gas? Hah! In spite of the publicized glut, some stations in my area (OK, it’s California…) are up to $4.19 for regular.

How is your grocery bill doing? For those of you who leave the marketing to your spouses, a visit to the local supermarket will raise your eyebrows, if not your ire.

Take greeting cards as another ridiculous example. They are still printed on a small piece of paper, folded in half, with a lame poem and some kitsch decoration. Turn it over to see the price. Not a quarter, not a dollar, but some go up to $10. The nerve. And yet we shrug and pay it. It’s for Mom, Dad, etc. and we do not want to spend time with construction paper.

I have to stop here and take a deep breath. Because I am starting to sound like my father in his later years about rising prices, something I swore that I would never do.

Shall I go on? The average new car sold is now about $30,000. At least they have added more airbags and a welter of confusing electronics. Real estate? In many locales prices are back to 2007 boom levels and beyond. The Wall Street Journal reported today that the average price of a new mid-town condo has soared from $2 million during the Recession to $6 million today. Obviously not aimed at the medical profession. I remember when a million dollars was a lot of money. Only movie stars could afford that much for a home.

Now I sound like my father again. Best to clam up, let my wife do the shopping and keep me away from price awareness. But 2% inflation? Come on, man….

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