Monday, October 2, 2023

Inflation harm - the relativist and absolutist

 


Inflation is coming down. The Fed tightening is working. The consumers are saved. We are returning to normal. You have heard the arguments but that is based view that does not account for the true ravages of inflation. 

Yes, the rate of inflation is coming down but that does not mean that the basket of goods bought at the grocery store will fall. The cost of goods is not getting cheaper. It just means the rise in prices have slowed. If you have not seen your wages go up with the rate of inflation, your purchasing power has fallen. Your savings will not be able to buy the same basket of goods that you were able to purchase a year ago. 

How can we say that the world is better just because the rate has slowed. Wealth especially for those who have less to begin with has been destroyed. Your house may have increased in value but that is not a liquid asset which can be used to purchase goods today. 

The inflation relativist who may be look at the rate inflation may be happy, but the consumer purchaser who is an absolutist may not feel so good. If the price increases of used cars have fallen, that is great, but if the price of those cars have increased over the last few years, there is no bargain for consumers. Used cars have increased 50% over the last three years and new cars have increased by almost 30% while income has only increased 13%. Tell me why this would feel good for consumers. Assume use car prices fell 20%; the consumer will still be behind. 

Hard to say we have whipped inflation if real purchasing power has still declined. 

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