Lots of talk about inflation in the news. Not just currently, but perpetually. Are we experiencing it? If so, is it too much or just enough? The current administration has had their eternal optimist, Easy Al Greenspan, chanting the mantra of inflation for 9 months now. Why? Inflation would mean the economy is heating up. Accordingly, Easy Al has raised the interest rates twice in the last 3 months, with more expected. Of course, with inflation at a near-all-time-low 1.9%, this is nothing more than an effort to delude people into thinking we're not heading into a recession.
Regardless, did you ever wonder what inflation is and how they figure it out? Believe it or not, it's a combination of interesting and ridiculous.
The Department of Labor's Bureau of Economic Analysis calculates, on a monthly basis, this neat number called the Consumer Price Index (CPI). The CPI is, in essence, the monthly cost of a "consumer's standard bundle of goods". The monthly change in this bundle is inflation/deflation. Inflation peaked at 12% in the late Carter years.
At this point, if you're saying "Ed, what is said standard bundle? I bet there are some comically ludicrous differences between the government's idea of what people buy and reality" you'd be right. Let's break it down. The main categories are followed by a percentage weighting in the consumer's budget. So the 40% after "Housing" indicates that they believe the average person spends 40% of his or her budget on housing.
Food (16%) – milk, coffee, fresh chicken, wine and breakfast cereal
Housing (40%) – rent and furniture
Transportation (18%) – new vehicles, airfare, gas, car insurance
Medical care (6%) – prescription drugs, medical and eyeglass care, doctor bills, hospital bills
Recreation (6%) – TV, cable, pets, admissions
Education and Communication (5%) – college tuition, postage, phone service, computers and software
Other (4%) – cigarettes, funeral services
OK. Let's slow down here for a second. The average American, in our economic analysis, spends more on tobacco (we all smoke, of course) than college tuition. Furthermore, prescription drugs are clearly less than 6% of everyone's budget, and we spend more monthly on our new car (which we all have) and airfare than we do on medical care, tuition, communication, and entertainment combined. (Note: Public transit is not counted in transportation. Shove your fare increases up your ass, city folk). Lastly, our diet consists of chicken, wine, and cereal (and no one eats out).
While I try to find a way to decrease my massive monthly tobacco and funeral purchases, I will continue scouring the Earth looking for one single person whose consumer spending profile even remotely approximates this patchwork clusterfuck. And you might want to purchase a large grain of salt to consume with news about "inflation".