A friend on Facebook writes:
Many in the MSM (mainstream media) will lie to your face. Be discerning. Prices rose 8.5% year over year in July. That is NOT a significant slowdown. If you only lost 1/12th of your money since last July, that really is not an improvement in circumstance after losing 1/11th of your money since last June. That is what these malefactors are trying to argue here.
I won’t mention the friend’s name: my policy when I quote from FB is to never name the person I’m quoting without first getting his/her consent.
But actually, if the data say that you lost 1/12 of [the value of] your money since July rather than the 1/11 that you lost from June 2021 to June 2022, that is quite possibly a huge improvement. It depends crucially on your baseline.
Here’s the first paragraph of the BLS’s August 10 report on the latest inflation numbers:
The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in July on a seasonally adjusted basis after rising 1.3 percent in June, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 8.5 percent before seasonal adjustment.
If your baseline is, as it seems to be for most people, that inflation will continue at a high level, then going from 1.3 percent in a month (June) to 0 percent in a month (July) is a huge improvement.
If your baseline is the purchasing power of your dollar 13 months ago, then finding out that it has lost no additional purchasing power in the 13th month is not an improvement at all.
What is clear, though, unless the data for July are updated to reflect an actual increase in the CPI in July, is that his statement, “That is NOT a significant slowdown” is incorrect.
Update
Here’s an example of someone who doesn’t get it:
When you lost your last game 91-0 then bounced back to lose your next game 85-0 https://t.co/jm4ErnWlPA
— David Burge (@iowahawkblog) August 10, 2022
READER COMMENTS
Nicholas Decker
Aug 11 2022 at 2:40am
Voters despise inflation; they view any increase in prices as always a bad thing. Accordingly, politicians (at least in the US) must act to stamp out inflation — even if it would lead to elevated unemployment.
In most other contexts (at least if you agree with Caplan) we would say that voters are extremely irrational about economic issues. Why not here? Do we care too much about inflation?
At a minimum, I would think it makes little difference whether inflation is 2 or 4 or 6 or 8 percent – so long as it does not vary unexpectedly (or we have a measure like NGDP, which again, doesn’t vary unexpectedly.)
Brandon Berg
Aug 11 2022 at 9:14am
Is seasonal adjustment ever used for year-over-year changes? It’s the same season in both years.
Johnson85
Aug 11 2022 at 4:35pm
I would say it’s uncharitable to say Iowahawk “doesn’t get it”.
Aside from the fact that it’s a joke account, Consumers aren’t getting monthly wage increases for the most part, so this isn’t things getting better for them over the past month. Prices staying flat for a month, but still being 8.5% higher than the year earlier, just means continued pain for them at the same level, and some potential light at the tunnel that maybe over the next two to four years, they might end up as well off as they were a year ago as far as the ratio of income to expenses.
Even for people that actually did see their cost of living go down because of the mix of goods and services they buy, if they weren’t saving before inflation took off and they have gotten a “raise” of 3%, and with the pull back they’re only spending 5% more, it still is only minimal relief to see the debt run up at a slower rate.
And I’m not sure if this applies to Neil Irwin, but there was a lot of partisan cheerleading overstating what that flat month means. Lots of supposed professionals that are just unserious.
Neil S
Aug 11 2022 at 10:57pm
Prof. Henderson,
I’m quite disappointed with your comment. year-to-year numbers are fine, month-to-month numbers are fine (if exceedingly variable), but criticizing people who are surprised by the first use of month-to-month numbers for reporting inflation rates that I can recall is disappointing.
Perhaps had you pointed out that June’s annualized month-to-month number was ~17.7% I would find your observation more substantive.
Michael Rulle
Aug 12 2022 at 8:14am
Agree with David we should use month over month as our primary assessment of the state of inflationary increases or decreases. Year over year produced monthly can give the appearance that inflation is increasing or decreasing when it is not. Inflation did not increase in July versus June in 2022. But the headline print was 8.5% (approx). Over longer periods of time (for example 10 consecutive years etc) annual can be useful, not every month as David explains.
Spencer Bradley Hall
Aug 12 2022 at 3:02pm
Inflation should be measured to coincide with the distributed lag effect of money flows.
Andrew_FL
Aug 13 2022 at 12:49pm
IIRC the CPI legally cannot be revised because various pieces of legislation invoke it directly and because of that it is required to not be changed from whatever is initially reported
Comments are closed.