Inflation Heat Map

By: Robert Aro

With the August Consumer Price Index (CPI) reaching 8.3% earlier this week, the general public wonders when exactly the Fed rate hikes, to fight (price) inflation, will kick into effect. Meanwhile, the Wall Street Journal offers a unique visualization of (price) inflation over the last year, see below:

inflation_heat_map.png

Inflation Heat Map from Wall Street Journal

Their website includes an interactive map. Hovering a cursor over the varying colored boxes reveals the category and percentage change over the last year. Most of the boxes are orange, indicating inflation is running hot, while the few blue squares mean inflation has cooled and may even be negative… There is no red on this spectrum.

The top left box denotes total inflation or “All Items” at 8.26%. The sub-categories of inflation are found along the top, such as: “Services” at 6.81% or “Commodities” at 10.57%. Vertically appears to list the components of each sub-category. This illustrates one of the problems, as calculating inflation is the art of comparing apples to oranges.

Consider, per the heat map, a random selection which shows:

  • Uncooked beef roast: +3.26%
  • Lettuce: + 10.67%
  • Floor coverings: +14.85%
  • Prescription drugs: +3.17%
  • Motor fuel: +26.16%
  • Daycare and preschool: +3.69%

The above illustrate only six categories, yet there are almost three hundred. Consider questions such as:

*What does the price of beef matter to the vegetarian?

*What exactly comprises floor coverings?

*How can anyone assign a value of importance between prescription drugs, motor fuel and day care, and what if you don’t use any of them?

All these are “averages” of some sort, which must factor in geographic location, such as the price of bread in Alaska versus Idaho, as well as the relative importance that each item places in the “average” person’s life. Because Potatoes were up 15.16%, but Sewing Machines only 8.14%, the statistician must decide which played a bigger impact in people’s lives and then quantify.

Eventually, after various deliberations, the data gets rolled into the 8.26% CPI figure. True, 8.26% is higher than the Fed’s targeted 2%; but the Fed’s target easily could have been 0% or 4% and CPI 16%. They try to make it sound scientific. But it’s really just guess work, estimates, and bias from the central planning committee to arrive at a figure.

What should also be considered are the few categories showing a negative inflation number, such as:

  • Television: -19.19%
  • Video and audio products: -8.96%
  • Car and truck rental: -6.16%
  • Uncooked beef steaks: -2.95%
  • Jewelry: -1.16%
  • Education and communication commodities: -7.33%

For reasons never clear to the public, the Fed always wants some inflation, never zero percent or even negative inflation. Understanding the limitations in the data, the sample above finds that the price of televisions, uncooked beef steaks (as opposed to beef roasts, which increased) and even jewelry prices are said to have decreased in the last year. The alleged harm of these price reductions should be questioned by the public.

It’s fair to say, all things being equal, you’d rather buy the same TV at a 20% discount, and you prefer to buy more products when they are on sale; yet mainstream economists and members of the Fed seem to not understand this. Nor are the benefits of a stronger dollar, versus one that depreciates year over year, well understood by them. Conversely, many are fooled into thinking that “high inflation” is good for businesses since they can presumably make more revenue. They fail to factor in that the cost of production also increases. But since the “structure of production” is basically absent from mainstream economic theory, it makes sense that they have an inability to articulate the various negative effects that come with currency debasement.

In the end, the problem with inflation very much resembles the inflation map presented by the Wall Street Journal; messy and difficult to comprehend, yet strangely amusing, until one day all prices become unrecognizable. And no matter what they say in the mainstream media or in a university setting, a policy of inflationism always leads to economic destruction and the degradation of society.

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