Quick thoughts on inflation
Inflation is hard to measure. Goods constantly change, so you have to figure out how to compare a cell phone today with one three years ago. The proportion of goods people buy also changes, so if people are buying fewer phones these days because they last longer, but are buying more socks, you have to balance that out to get a “price level” based on a basket of goods. If prices drop for Phone 1.0, but Phone 1.2 is about the same price with more features… what’s the change in the price of a phone? What happens when the price of Phone 1.0 goes from 100$ to 95$ due to production efficiencies, but an increase in the amount of dollars raises it’s price such that the price is still 100$? All inflation estimates can look at it is the price over time, so it looks like 0 inflation instead of ~5%. Ru-roh.
Inflation is variable across time, but also regions and even economic classes. Within a single year, prices can swing more in CA than TX or vice versa, and Walmart has done an impressive job keeping inflation lower for the poor while the rich see much swingier prices. Talking about THE inflation rate is really awkward, and probably a bit misleading.
Whether the current yearly inflation rate is ~5% (per the media and administration) or ~7-8% (per the normal methods economists use to measure such things), that is still a HUGE increase over the past 20 years. The US has been accustomed to ~1.6 - 3% inflation for a few decades, as shown in this chart from Statistica based on US BLS data.
More evidence that it is hard to measure, and thus agree upon, here is a chart from Index Mundi on the same topic (can’t get the picture, just follow the link.)
Whichever chart you look at, and whichever current number you prefer, 5% or 8%, that is a very large jump. 5% inflation isn’t 3% higher than 2% inflation, it is 150% higher! Two and a half times higher inflation. (Because percentages are weird.) 8% inflation is just crazy high.
To put it in another light, consider the Rule of 70, which estimates how long it takes something growing at a steady % rate to double. Just divide 70 by the % growth rate number and that’s how many periods it takes to double. If yearly inflation (the yearly growth rate of money, or the yearly decrease in the value of money, depending on how you define it) is 2%, the price level doubles, or the value of a dollar is cut in half, every 35 years. So a candy bar that cost 50 cents today would be 1 dollar in 35 years, all else being equal. In 70 years, two doubling periods of 35, the price of that candy bar would be 2$. In three doubling periods, 105 years, I am too dead to care, but my grandkids would be paying 4$ for that same bar.
Raise the inflation level to 5%. 70/5 = 14. Every 14 years the price level doubles. So the candy bar is 50 cents now, 1 dollar in 14 years, 2$ in 28 years, 4$ in 42, 8$ in 56, 16$ in 70. (Huh, the math worked out better there than I would have guessed.) In the same 70 years, at 2% the candy bar went up 2x in price, but at 5% went up 16x. My grandkids… well I had better start saving now in case they want some candy later.
Raise the level to 8%. 70/8= 8.75. Let’s round that to 9, so every 9 years the price doubles. In 72 years that’s 8 doublings, so .5x2^8, or 128$ for that candy bar. If 8% inflation keeps up, I might live to see the day that I pay more for a Snickers bar than I did for a pair of sneakers when I was a kid. And that is even without levels we economists call hyper-inflation.
As citizens, these levels of inflation should be very concerning.