The Bureau of Labor Statistics publishes something called the core inflation rate, which is the change in prices for goods and services excluding food and energy.
While there’s a theoretical explanation for this calculation, it’s long been a puzzlement to those who live in the real world. Aren’t food and energy really the core items? Don’t those affect the price of everything else?
And most importantly: Who lives their life without eating food or using energy?
Inflation hasn’t been a topic on the minds of many for years. You have to go back to the 1970s and early 1980s – when double-digit annual percentage increases in prices were common – to find a time when inflation dominated politics and the national conversation. Many Americans have come of age since then. They may know housing and stock market booms and busts, but they haven’t been through widespread fretting about constant price increases.
That’s an important distinction because most people have seen the effect of rising prices involving specific products – gasoline, for example, now well above $4 a gallon. They’ve even seen instances of a phenomenon many in the bad days of inflation thought they’d never experience – falling prices.
Consider technology. For TV sets, music players, portable phones and computers, every year – heck, every month – brings greater capability at lower price points.
Or consider the screaming deals on homes these days. Of course, since many home purchases are financed through the sale of real estate already owned, and with fewer deals getting done, and with potential buyers still nervous about employment prospects, and with lenders finally getting serious about credit standards, not many people are grabbing those screaming deals, which is why they’re there to begin with.
But you know all that if you’ve been trying to buy or sell, or just trying to remember supply and demand curves from Econ 101.
What you may also remember from real life and economic theory is that people are not powerless when it comes to dealing with price increases for specific expenditures, even crucial ones like housing, food and energy. Homes too expensive? You stay put, or rent, or move to where housing is cheaper. Hamburger getting pricey? Time to switch to chicken. The national brand just went up again? Try the private-label product. The total on the gas pump blinking too fast to read as you fill your tank? Back to fuel-sipping cars, or the bus, or staying home.
But those strategies are limited when prices for everything, including the substitutes, are going up.
The national consumer-price-index year-over-year inflation rate, as reported by BLS for February 2012, was 2.9 percent. For Seattle-Tacoma-Bremerton, it was 2.7 percent.
Neither of those rates is particularly worrisome.
Will those hold? Gasoline is getting more expensive. So is oil as a feedstock for thousands of products. We’re getting a break from natural gas for residential heating and industrial purposes, and for electric generation, but since it’s not yet a major transportation fuel we’ll be paying more for everything that has to get from somewhere else to us.
Like food. Farmers are reporting higher commodity prices, but they’re also reporting higher input costs. Both mean food will be more expensive.
The ramifications for individual budgets and the broad economy are huge. More money spent here means less spent there (especially in a time of flat or shrinking incomes). And we haven’t even talked about another bill likely to go up – taxes.
Throughout the recession consumers have been understandably focused on the income side of their finances. The out-go side has gotten plenty of attention, too. It’s going to require even more, lest inflation’s revival accelerates the speed with which what income there is exits the wallet and diminishes the time it stayed there.
Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at firstname.lastname@example.org.