Essay: Inflation - 5/7/2008
Or you can talk to someone on a fixed income who has to drive a lot. Or go to the closest grocery store, and talk to the parent who is doing the weekly shopping for the wife and kids.
You are likely to get two vastly different impressions. Now don’t get me wrong. This isn’t Weimar Germany, where you had to take a wheelbarrow full of cash to the store to get a loaf of bread.
It isn’t even Argentina in the 1980s, where I watched people run out and buy merchandise on their lunch hour in case the value of their money melted to nothing by nightfall. But there is a problem with inflation in this country. It is growing, and those suffering the most are those who least can afford to do so. Which is usually the case.
To some extent, inflation hits everybody differently. When we measure inflation, we normally use the consumer price index, which is based on an attempt to create a so-called “market basket” of goods and services reflective of what the average consumer might buy.
In some areas, particularly electronics, we are actually seeing deflation. In 1950, a small black and white TV with a fuzzy picture cost about five thousand dollars in today’s money.
And you don’t have to be very old to know that I-pods and big-screen, HDTVs cost less now than just a very few years ago.
Housing is cheaper too. Which is not a good thing if, like most middle-aged Americans, your single biggest asset is in the value of your home. Oh, you are fine for now, unless you need to sell it.
Then, especially in Michigan, good luck. Where inflation is steepest these days is in food and energy prices. Those tend to be fixed and unavoidable costs for most people, especially in Michigan, where we have decidedly inferior public transportation.
Poorer people pay a higher percentage of their total income for both food and fuel. That means their incomes are shrinking.
The kind of inflation we are seeing now hurts the poor more than it does the rich -- and especially the poor whose incomes don’t automatically rise with inflation. Crash programs aimed at increasing ethanol production could harm some people more than it helps them.
Hurt them by driving up food prices. Few people have noticed, but Costco and Sam’s Club are quietly limiting the amount of rice customers can buy. They worry about coming shortages.
Alan Greenspan, the most famous chair of the Federal Reserve in history, said this week he now fears the economy is once again prone to a new round of inflation. When he speaks, you can bet his successor, Ben Bernanke, is listening. If you expect the feds to cut interest rates again in the near future, you may want to think again.
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