No Inflation—Really?
The government (Bureau of Labor Statistics – BLS) reports consumer price changes every month for a basket of goods and services. The goal of this section of the website is to comment on the most recent month’s report.
The headline CPI rate reported for January 2011 was 1.63% (year-over-year change). Most experts describe this level of inflation as being tame, or virtually non-existent. However, the overall headline rate can mask some important details. Here is an example. For the year ending January 31, 2011, here is a list of the five most inflationary and the five most deflationary items according to government statistics:
| Inflation | Deflation |
| Butter +20% | Televisions -18% |
| Lamb & Mutton +19% | Other video equip. -14% |
| Fuel Oil +17% | Photographic equip. -13% |
| Gasoline +13% | Computer software -10% |
| Beef & Veal +11% | Other furniture -10% |
I have a question for you. Which do you believe had the most impact on the average person: a significant rise in food and energy prices or a drop in television prices? The point of this true life example is that the overall headline CPI can mask some significant increases in our true cost of living. It’s difficult to see how any living person had an inflation rate of only 1.6% in January 2011.
For most of you, I need not mention that gasoline prices have been going up dramatically since January. Over the past six months, the national average price of gasoline has increased from $2.68/gallon to $3.48/gallon, a rise of 30%! Here is the chart from gasbuddy.com:
The bottom line of this discussion is that the average American family is experiencing something much different than 1.6% inflation and this will definitely slow economic growth down the road (assuming wages fail to keep up).
