Few people understand the impact of inflation in their lives because it happens slowly. When inflation is high, budgets get stretched. When wage growth is flat inflation sinks hopes. Today, economic data suggests prices are rising very, very slowly. Yet, surveys suggest that the average American’s daily experience with inflation may be quite different than officially portrayed. The problem isn’t measurement of inflation; the real problem is how inflation is experienced across income levels. This week we examine these issues.
The Billion Prices Project: Using online data for measurement and research. Advances in “Big Data” technology now allow for large scale data collections on the web to shed light on price changes. The Billion Prices Project was founded by two MIT economists. By using technology and real-time tracking methods, price level fluctuations can be measured in real time. This method is a good predictor of official inflation statistics. As it turns out, US inflation numbers published by the U.S. Bureau of Labor Statistics can be trusted. Online indexes appear able to anticipate movements in the official Consumer Price Index in many countries. Click here to read the full article
Upper income and lower income households do not face the same inflation rate. New research from a Harvard University Ph.D. student looks at who has gained the most from innovations in consumer products from 2004 to 2013. His research found the average inflation rate over the time studied for households making more than $100,000/year was 0.65% lower than for those making less than $30,000. Higher levels of inequality have spurred companies into innovating more for households at the top of the income distribution relative to low-income households. Inequality may shape the path of innovation. Click here to read the full article
Inflation looks different for most Americans compared to “average” inflation in the broad economy. That is the conclusion reached in “Where’s the Beef? ‘Lies, Damned Lies, and Statistics,’” a recent research paper from Research Affiliates. Inflation in the main four categories—rent, food, energy, and medical care—has been running at roughly 3% since 1995, significantly more than the 2.2% calculated by the Bureau of Labor Statistics. That differential compounds to over 20% in 20 years. When that statistic is coupled with stagnant income growth, it is not difficult to grasp why more middle class Americans are struggling, and lower income households are struggling even more. Click here to read the full article
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