Morton Marcus
We get lots of news about inflation. Sometimes, the numbers seem out-of-line with what we are experiencing. Maybe this column will help.
Let’s start with some numbers that are virtually unknown to most of us: the actual Consumer Price Index (the famous CPI).
The CPI is an average of prices in urban areas across the nation. Its starting point of 100 was the level of prices from 1982 through 1984.
The mix of goods and services changes over the years because we weren’t buying the same things back then as we buy today. No cell phones and no autos with backup cameras. The medications we had then did not protect us as well as those we have today.
Daily, the Bureau of Labor Statistics (BLS) collects data on prices and the very nature of our purchases. Then every month they offer a CPI number, the best indicator we have of price changes allowing for all the changes in our buying habits.
In May this year, the CPI stood at 314, that’s 3.14 times higher than consumer prices in 1982-84. That nickel candy you bought back then would cost at least 15¢ today.
The BLS provides CPI data for the four big regions of the nation. Indiana is in the Midwest region (roughly the Ohio River to the Great Plains) where the May 2024 CPI was not 314, but 290. Long run, inflation has been lower for our part of America than for the nation at large.
Nobody is telling us that, because we don’t care about long ago, We’re focused on the near-term. And, maybe our lagging price increases are not good news, but the result of a lagging, staggering economy.
The news we do get is that U.S. prices, in general, in May 2024, were 0.2% higher than a month earlier. If that 0.2% (actually 0.166%) stayed the same over the course of a year, what would the annual rate be? The answer is a delightful 2.01%.That’s what the Federal Reserve wants: 2% annual inflation.
But one month does not a year make. The growth rate of a tulip, in its first days above ground, slows or tulips would be higher than our houses. Similarly, the Cubs winning in May does not mean they will be in the World Series.
The Fed is not prepared to declare victory on the basis of a single month. If we look back beyond one month, we’ll find prices are still 3.3% higher than a year ago, in May 2023. But wages are 3.5% ahead of where they were a year ago.
Since this inflation began three years ago, consumer prices have increased 17.6% with wages rising 15.2%. Wage increases usually lag prices. The fight against inflation isn’t over, but we and the Fed are on the right path.
Mr. Marcus is an economist. Follow him and John Guy on the Who Gets What? podcast available at mortonjohn.libsyn.com
