Tracking Inflation
As strange as it may sound these days, we need inflation. Our population grows and so must our economy. Without inflation, over time we’d see a decline in our standard of living and eventually lose our position in the world. But the trick is having the right amount of inflation. Unfortunately that’s an incredibly hard thing to manufacture in an immensely complicated and interconnected economy, and world, such as ours.
The Federal Reserve had long targeted 2% per year as being the Goldilocks number for inflation. As you may recall, pre-pandemic the Fed was struggling to get inflation even that high. Then in 2020 the Fed started thinking about its inflation goal as an average over time versus a specific annual target. The idea was to let the economy run hot for a while before cooling it down if needed, ultimately getting to that sustainable, just right average. The Fed, by its own admission, misdiagnosed how quickly inflation would rise and has been racing to catch up, likely with another 0.75% rate increase this week (cooling the economy by ice bath versus a hand fan).
So we need inflation to keep our economy healthy, but too much leads to a variety of impacts that we’re now seeing play out more or less in real time. Inflation hits low-income folks and young people hardest, but the pain of quickly rising prices and its knock-on effects is being felt across the age and income spectrums.
Along these lines I wanted to share links to a couple infographics with you.
The first is from USA Facts, an interesting website that pulls together a variety of government data on a host of issues. In this case it’s repurposing inflation data from the Bureau of Labor Statistics to show how inflation is impacting different age groups. Maybe this is telling us what we already know, but it’s helpful to compare our personal situation to a bigger-picture view of inflation across the lifecycle. The page lets you slide between ages to see how the overweighting of rent cost shifts to home ownership in one’s 30’s, for example, while spending on gasoline typically declines as one ages, with the drop off beginning in the 40’s.
The second infographic is from The Wall Street Journal and provides a deeper dive into BLS inflation data. The various items BLS tracks are color coded by price change over the past year and there’s a lot of information to check out. For example, prices for “Fresh Whole Chickens” and “Frankfurters” rose 15% or so in the past year, while “Smartphones” fell about 20%. The WSJ refreshes the data monthly, I believe, as the BLS publishes updates.
The tool also lets you create your own basket of items, perhaps mimicking your typical spending habits. As with USA Facts above, in a sense this is telling you what you already know from experience, but it’s still interesting to see how prices have changed over the past year in the official government data. My basket started with almost 19% inflation in June of 2021 but crept up to 33% by last month, driven largely by gasoline, men’s footwear, and citrus fruits. Go figure.
Have questions? Ask me. I can help.
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