The real inflation is in Shelter and Energy. If you compare the basket of goods from last year, and if you had $4000 a month to spend on that basket of goods, this year it would have cost you $4095. Almost half of that increase is due to shelter costs. Most of us do not experience the brunt of that if we live in homes with fixed rate mortgages or if we have long term leases.
There had been discussions of the Misery Index during 2010 - the addition of the inflation rate to the unemployment rate. This is terrible economic math. It is like comparing merging a tomato and an apple because they are both red. The Misery index was dropping during 2015 because we had CPI-U deflation. This column argues that the unemployment rate, the U-7 unemployment rate, is much higher than the U-3 unemployment rate used to calculate the Misery index, and that this effective unemployment rate, when participation is factored into the equation, is at least 7% and the Misery index is bumping up against 10%.
The data is the data. There is inflation. It is healthy inflation. This column has argued that 3-4% inflation is okay. We are under 3%. We have been over 3%. We are not experiencing all of the inflation that is being measured.
It's the economy.
Inflation Down off of its peak
The Consumer Price Index (CPI) data was released today. The CPI_U inflation rate came in at 2.28% compared with 2.23% last year. This is a "normal" rate of inflation. We are seeing commodity deflation and service inflation.We see it again. We have been seeing Shelter Inflation. We are seeing it again. We had energy deflation during 2015 and 2016. We have seen energy inflation during 2017 and 2018. There is, again, some hidden medical insurance inflation with the weighting of the health insurance rising, again, from 1.001% to 1.042% If it is taking up 4% more of the relative importance (1.04 versus 1.00) then the inflation is being masked. Shelter Inflation is fairly constant at 3.3%. It was 3.2% during September 2015, 3.4% during September 2016, 3.2% during September 2017, and 3.3% this month.
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