by Andrew White | July 14, 2015 | Comments Off on U.S. Inflation Analytic is out of date – So let’s update it then!
I was vindicated yesterday in the US print edition of the Wall Street Journal. The article concerned was titled, “Consumers Pinched by Pricier Services Despite Low Inflation“. I had blogged earlier in July regarding “Demographics and Deflation” and in that blog I called out, what for me, was an obvious situation: prices are in fact rising and have been for some time. Yet the US inflation data or metric reported in the headlines seemed to suggest that prices remain flat or low. This was (and is) an inconsistency for me.
The WSJ article from yesterday clearly confirms my point but goes further by offering a real world explanation: services are indeed going up in price, even as commodity or good prices are flat or even falling (in some cases). However since goods are running at near zero change, and services increasing, the combined impact is very low. So the headline data suggests that prices are not increasing. Wrong. I suggest that the metric used to gauge where we are in terms of cost of living and prices is out of date and inconsistent with how the world works. Oops. Time to make a change?
We in the IT business have been talking about “self-service” for years and yet have we really thought about how such changes in how firms operate would or could change prices? Entire industries are also converting, over time, from good-based manufacturers to service-centered economics: just look at the UK and its banking and insurance segment. The US is not that different in a general sense.
So the bottom line is that prices for services that we consume are and have been going up – and wages continue to remains fairly or relatively flat. This the level of discretionary spending available to us is lower. This explains in part (perhaps) the muted consumer segment of the US economy. Of course, the political debate rages: do we simply increase minimum wages or try to redistribute funds from the rich to the middle classes to help increase that spend, or do we try to grow the entire economy so that everyone experiences an improvement? Let’s leave that one for a later blog.
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