Do you believe posted inflation rates?

I doubt that the inflation number is accurate, only in the sense that there’s no such thing as “the inflation number”. Over time, some things will increase in price, and some things will decrease in price, and it won’t always be the same things. Heck, some things will come into existence or go out of existence: What’s the price of a new smartphone, compared to what it was 40 years ago?

That said, most reasonable measures of inflation are usually pretty close to each other. And when they’re not, you get problems, but those problems can’t be blamed on some vague “inflation”, anyway.

This is an interesting table:

For the seven months ending in March, the monthly increase in the CPI looks like this: 0,2, 0.1, 0.2, 0.3, 0.4, 0.6. The annualized rate based on those numbers is 2.6%. However, if you look at just 2021, that average would be much higher.

The primary driver looks to be the cost of fossil energy, which is well into the double digits for annualized price increases. And that’s while energy consumption was down due to lockdowns. It will be interesting to see what happens when the economy fully opens.

Another standout is used cars, which went up by almost 10%. That is likely a one-time effect in my opinion, as the big increase came right at the beginning of Covid and probably represented a lot of people buying a car to get off mass transit or to get out of cities. They are going up again now, likely because there are shortages of new cars due to the semiconductor shortage.

The April numbers will be very interesting.

It’s quite hard to link market reaction to policies or really anything. “Buy on the rumor, sell on the news” has a gloried history. If the market thinks a considered policy is good news, the market will go up even before the policy is passed, and may fall when it does pass because it’s not amazing enough. Temper your conclusions about markets - they’re not always what they seem or even obviously rational in the moment, though it can be obvious in retrospect at a distance.

And that’s why you don’t look at this stuff on a monthly or (in this case: pandemic) annualized basis: energy costs (well, oil, but the whole sector as well) fell like crazy because nobody was using that much energy because there were shutdowns and nobody drove or made things or whatever. You will definitely see big spikes in energy costs as the economy opens because nobody was producing oil, gas, whatever, that anyone would use because there was no demand.

Once demand ramps, there’s a really big lag before producers can fill it. That doesn’t mean inflation is here to stay, it means the supply chain is in shit shape because it acted rationally during a downturn.

Link it to what folks think a so-called living wage ought to be. That keeps climbing. How’s that possible with such miniscule inflation?

Isn’t that circular?

The folks here, for example, use the same sorts of methods and procedures as BLS does when calculating CPI. They also use very regional data (including taxes, regulatory costs, etc) to construct various recommended minimums at the local level.

The so-called living wage is a tool, first developed by MIT.

WHAT IS THE LIVING WAGE CALCULATOR?
Families and individuals working in low-wage jobs make insufficient income to meet minimum standards given the local cost of living. We developed a living wage calculator to estimate the cost of living in your community or region based on typical expenses. The tool helps individuals, communities, and employers determine a local wage rate that allows residents to meet minimum standards of living.

The living wage varies from state to state, county to county, city to city, and family type within county. Here’s the chart for Benton County, OR.

I used Benton County because historical data is hard to find, but I did find some for Corvallis, which is in Benton County.

According to that data, the living wage rose from $9.64 in 2003 to $13.81 in 2021, which is an annual rise of … hmm, about 2% a year, exactly what you would expect given national inflation numbers over that time span. So it’s not merely possible, it is inevitable if one actually looks at facts rather than assumptions from ideological biases.

As Paul Krugman noted, in the US the public perception of inflation is highly correlated with the price of gasoline.

I don’t dispute it, but it does seem bizarre for me. Even for most people (non-uber drivers), gas is surely less than 5% of median income.

I think inflation is a perception problem which some countries attempt to manage, maybe not all. However, there will be political decisions to do this.

I regard the UK’s measure of it almost laughable.

For instance it was Thatcher’s problem to solve in the 80s and her use of interest rates caused long recessions doing that. This is what they are trying to avoid. So inflation can be there, and be quite a bit (relatively), but the political idea is to hide it.

Thatcher blamed the unions attempting to get raises to match inflation, as if it was utterly selfish to not take a 10% pay cut every year, but the fundamental problem was oil prices in the mid 70s tripling. The perception fedback into the loop though, so knowing your wages were dropping 10% this year was bad, but if you don’t know, inflation can be perhaps controlled or ignored.

This is why typically in the UK incomes were static since around 2009, but there was 5% inflation a year, combined with low interest rates, it meant that UK earners lost around 40% of their wealth from about 2009 to about 2016.

However, when it was at 5% a lot of things went waaaay up in price. Food you bought every week. Chicken Breasts tripled in price. Most items shrank in size and went up price. It suits the world now to write this off as “it’ll stop you getting fat”, however, it was clear for a number of years inflation was hitting at a much higher rate on things you spend on regularly.

Oh, and I know in the UK (and I think everywhere) that asset prices are not included in inflation. Otherwise we’d have been at 5-10% inflation some years on that alone in the UK. But it’s a blind spot long removed (was it ever in there?)

How is the statistic of lower inflation done? Enter the falling electronic saviour good. From around 1990 when it was pc’s through laptops to satnavs to flatscreen televisions, there have been things which half in price regularly as the electronic good matures. We’re all familiar with these. A widescreen telly went from 5 grand to 400 pounds in the space of 4-5 years. This was repeated with the flatscreen version. Monitors. Smartphones are one of the things which hasn’t had the big falls in prices. This ends up with things like say, the current high drop item, ssd hard drives weirdly in your inflation basket (I can’t check this, I did go looking for lists but they’re not readily available, but I suspect it is true, GPS was on there a few years back when they were dropping like a stone, and I’ve bought one in my life). You’d think they’d run out of these eventually, but it seems not yet.

So in summary. As they are calculated at the moment, I don’t think it represents real inflation due to loading of the baskets to minimise it. Because the strategy since 2009 has been to load up on countries with debt then deflate the currency to reduce the debt burden. It seems to work for the governments. Inflation is perceived to be under control, while normal people get poorer. But as is anything, it is until it isn’t. Then the faults of the measurement process will become clear.

Exano linked to an analytical definition of living wage. I suspect you are referring to a political definition. The best I can think of at the moment is a $15 minimum wage, and the call for that has not changed for several years. Does that mean there has been no inflation? Not hardly.
So even an average of living wages over time is not a great definition of inflation.
And, as has been stated again and again, they reason the MW increase people desire now is so great is that it has been shrinking with respect to inflation for a long time. If it had been growing with inflation the desired increase would be much less.

So, try again.

Not to mention that no one worries about deflation when gas prices drop.

I stand corrected!

In answe to the OP here’s what I found:
Board of Governors of the Federal Reserve System

Toggle Dropdown Menu

Main Menu Toggle ButtonSectionsSearch Toggle Button

  1. Press Releases

Press Release

PDF

April 28, 2021

Federal Reserve issues FOMC statement

For release at 2:00 p.m. EDT

The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.

The COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world. Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened. The sectors most adversely affected by the pandemic remain weak but have shown improvement. Inflation has risen, largely reflecting transitory factors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

The path of the economy will depend significantly on the course of the virus, including progress on vaccinations. The ongoing public health crisis continues to weigh on the economy, and risks to the economic outlook remain.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer‑term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. In addition, the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee’s maximum employment and price stability goals. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

It appears a firm yes for a while.

But gas prices are posted on big signs - so any change is easily visible even when you’re not interested in buying gas. Availability bias means that if someone asks you what you think about inflation, you think about the price that comes to mind most easily - which would be gas. If grocery stores posted milk prices on big signs outside the store, milk prices would influence people’s perception of inflation unduly.

I commend you for posting this.

This issue illustrates the problem with the CPI: trying to boil down something as complex as the national inflation rate to a single number will result in loads of anomalies. It would be like summerizing all Americans by determining the average age.

With that caveat I trust the CPI. It’s a comparitive tool, not necessarily a descriptive one.

One of my fave bloggers, Kevin Drum, just did a good post on reported inflation and perceptions, and how the statistics are just a mess at this moment because of how they’re reported. It’s a very short post with a couple of charts and also links to this this piece that explains why the reported numbers are misleading because they compare to the period a year ago when prices were in freefall.

I was going to say: I understand people psychologically peg it to fuel prices, I guess, but it also doesn’t make much sense to me because gas prices wildly fluctuate over any given year by amounts that general inflation does not.

Hopefully not paywalled.