Why the ‘Good News’ About Inflation Isn’t Good for You
Low inflation is good news, unless that low inflation reflects price deflation in every sector other than food and fuel. Then, it’s not so great.
Jul 31, 2020270.2K Shares3.8M Views
With yesterday’s news that inflation is creeping up, economic cheerleaders were out in force trying to convince Americans that a small rise in inflation is good, if headlines like those in today’s New York Timesare any indication. BNP Paribas economist Anna Piretti is even approvingly quoted as cheering for more inflation, since higher consumer prices mean businesses might eventually think about hiring again!
“„But if they do not pass along those price increases, analysts said, that may worsen their own financial health and prolong unemployment.“If producers see their profits being hurt they will be more reluctant to hire,” Ms. Piretti said.
Mind you, if you exclude energy and food from the producer price index (the inflation rate for industry, instead of consumers), yesterday’s report said producer inflation was up only .3 percent. Consumer inflation was up .2 percent.
Dig deeper into the numbers, though, and The New York Times thinks it’s important that you know that consumer inflation actually sort of went down!
“„Excluding food and fuel costs, which tend to be volatile, prices fell 0.1 percent — the first decrease since 1982.
Yes, excluding two of the most price-inelastic necessities that even the unemployed are on the hook for — heat and food — inflation’s really down, don’t you see? You should be happy, even though the entirety of price increases came from things you can’t possibly go without. Economists think it’s important that you understand which of your costs didn’t rise:
“„A decrease in the price of rent, new cars and airline tickets helped offset the jump in energy prices.
Yes, in the midst of a housing crisis that is converting more Americans from homeowners to renters (and increasing vacancy rates), it’s good news that rents remain low, and obviously the decline in the price of new cars and airline fares is more important to Americans than the rise in the cost of food, heat and gasoline.
Of course, if you’re un- or underemployed, increases in the costs of food and fuel are actually probably more important to your daily existence than the cost of airline tickets and new cars that you might not be able to afford. Other statistics show that Americans’ average weekly earnings are down 1.5 percent in the last year, partly because employers are cutting hours and partly because they aren’t offering raises. With economists calling for Americans to suck up further price increases in the hopes that employers will resume hiring rather than rely on further gains in productivity with the same (or lower) staffing levels, there certainly remains a strong case for an effective jobs bill — and it’s a big part of the reason some economists are advocating for wage subsidiesrather than more inflation.
Rhyley Carney
Reviewer
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