Inflation has really hit consumers pockets and political stances in the last few years. I remember seeing a dozen eggs at the grocery store be an astronomical amount. Blame the presidency and the related political party! Yes, inflation hurts. Yet, I do have to ask, is the blame throwing helpful or even logical?
Here is a recent argument I saw on Twitter.
Inflation in October of 2022 was 7.7% and inflation has risen by 3.2% in October 2023 which puts the real inflation at 10.9%
This argument just doesn’t sound right, because it looks like it’s cherrypicking two numbers in order to rile people up to a certain point.
I’ll admit, I didn’t understand what the inflation numbers meant anyway. I recently found this article that helps explain a few things, and I hope to reconvey the same information in my own words.
The inflation numbers given are snapshots of the economy at a certain time. A reported inflation rate in one month is comparing that month’s prices to the same month in the year before. They don’t truly convey what inflation is over the span of a year, as the previous Twitter post is trying to say. There’s a bunch of reported inflation numbers missing.
Rather, a better argument with using inflation rates is to use the averages reported throughout the year. 2021 average inflation rate was 4.7% and 2022 average inflation rate was 8%. So adding those two averages together, the better number would be 12.7%, higher than what the writer of Twitter post said!
But that’s not all. It’s inadequate to just compare inflation numbers. There is the Consumer Price Index and the Federal Reserve interest rate to take into account.
What is done to lessen the effects of inflation? Well, there’s the Federal Reserve. Inflation is when too much money goes into the economy and devalues money, and the Fed’s interest rates is taking money out of the economy which values money. In previous years, the Federal Reserve has been actively and aggresively setting higher and higher interest rates in order to pull money out of the economy. By so doing, they are hoping to curb inflation. The current Federal Interest rate is 5.5%, and the reported inflation rates are lower than that. So things should be trending are in the right direction.
So a whole bunch of numbers are being thrown around, but I’m still confused at if I’m going to have to pay more for eggs or not. What’s the best signal to show that? Well, there’s something called the “Consumer Price Index”. By the reports of the United States Bureau of Labor Statistics, the Consumer Price Index is going down. Now don’t get me wrong, the CPI graph still shows a relatively high level, but at least the trend is going downwards. And the current Consumer Price Index can be seen here. It looks like energy costs are generally cheaper.
So, yes inflation is bad, but the measurement of how bad it is needs to be done accurately. And yes, the Federal Reserve’s interest rates are affecting mortgage rates and housing needs. Even then, the effort of the Federal Reserve, the CPI, and inflation analysis needs to be taken into account. With relation to the average consumer, there are more things to consider if things are trending in the right direction.