‘I’ ON CULTURE
I was looking over the bills for our Fourth of July picnic a couple of weeks ago and wound up asking myself the question, “How come the government says prices are up 9.1 percent from last year when the price of just about everything went up a lot more than that?” I mean the pack of hot dogs that cost $5.99 last year were now $8.99. That’s just about 50 percent! And the rolls, burgers and so much else was much more expensive. I’m not certain about the mustard, but then again, I seldom need to buy much.
Chatting with friends I found out that most people were confused by the issue. So, using the economics classes I took so long ago (long enough ago that you needed to actually use math as part of the work!), I thought it might be useful to explain the discrepancy by explaining the Consumer Price Index.
We hear about it all the time on television, usually now starting with, “The Consumer Price Index has gone up again this month…” followed by percentages for the month and year. What does it all mean?
The CPI follows the cost of what is called a “typical market basket” and, generally unknown to most people, there are actually several of them based on whether people live in cities or rural areas or suburbs. There are a whole group of items on the list, often broken down into subgroups. For example, food is broken down into “food at home” and “food away from home.” Interestingly enough, food at home rose at around 12.2 percent over the past year, while that at restaurants only 7.7 percent. Restaurants have been working hard to keep business and have cut profits (and sometimes staff) to keep business. Keep in mind that some items go up in a given month and some go down. Meats actually went down slightly in June, probably as a reaction to large increases the preceding couple of months. That means if you bought a steak for $10 last month, you’ll only pay $9.99 this month. So celebrate!
Energy prices are through the roof, as anyone who goes to fill up their car knows. Gas is up 60 percent over the year, which is nothing compared to the almost doubling of prices for home fuel oil. Nice that we live in Florida with our mild winters! And, of course, those who drive for a living, like the truck drivers who bring our goods to us, will be paying a real lot more.
Some things have not risen all that much. While the real estate industry has its issues, on average, the cost of shelter (if you’re not trying to move) has stayed pretty much the same thanks to the fact that fixed-rate mortgages don’t increase with inflation. Also, rents are generally part of relatively long-term leases, so they stay the same until the next one comes up. Of course, landlords are thrilled when leases are up so they can raise the rent, but that doesn’t affect a large part of the population at any give time. Medical care is pretty stable because of long-term deals (yay for Medicare!) and clothing has been pretty steady thanks to the large markups.
But for many of us, the pain really hits daily as we go to gas stations and buy food. There are separate informal price indexes (see “Shadowstats,” which provides a group of them, although they are not in any way official and government people hate them) that more closely demonstrate our pain. One of them just focuses on food, gasoline and utilities and is running close to 25 percent.
Government leaders tell us to have patience, things will get better. But prices on diesel fuel are up a lot, which means the cost of transporting goods across the country is way up. We have the threat of a railroad workers’ strike and the effects of an actual strike in California from independent truckers. All of these will keep prices up. And even things that seem to stay steady, like homeowners’ association fees, will go up as workers ask for raises to match inflation.
There are many brilliant people working on the problem. But keep in mind there are a lot of factors that are just out of our control. The war in Ukraine will cut the supply of wheat greatly throughout Europe, Africa and the Middle East, even if some diplomatic agreements get made. The heat in the Midwest will affect our crops and not in a good way. There are dozens of factors that no group of governing people, no matter how well-motivated, can really change.
To paraphrase a line in a great movie, “Hang on, we’re in for a bumpy ride.”