Robert J. Samuelson reports on inflation being under control

Robert J. Samuelson writes that a big story is being missed:

We in the news business often miss big stories because they aren't announced by a corpse, scandal, invasion or controversy. One important story we're missing today is the absence of sharply higher inflation. Look at the numbers. For the past 12 months the consumer price index (CPI) is up only 2.5 percent; since 1997 annual increases have averaged 2.4 percent.

See for yourself with this handy graph provided by Economagic.

Comments

[Chris Adams]

hmmm, where do these guys buy their gas and housing? Not to mention "hidden" rising medical costs via reduced insurance coverage and rising copays.
chris

[Jake]

I will turn Chris's comment into a question for the more economically inclined ...

Do you put any stock in the assertion that the CPI is constantly miscalculated? For instance, I believe that both energy and housing prices are not included, however, the prices for both of these goods have gone up tremendously.

Should I trust the CPI?

[Kyle]

Not only is inflation low, but if it were not for the oil prices, we would have deflation.

[Craig Newmark]

I thank the commenters. Here are some additional remarks.

To Jake: the CPI most definitely includes both housing and energy prices. As of December 2004, "shelter" constituted 32.686% of the CPI; "fuels"--fuel oil, piped gas, and electricity, among others--constituted 4.021% and gasoline constituted 3.934%.

Despite huge amounts of publicity about recent housing price increases, particularly in Boston, New York City, Washington, D.C., South Florida, L.A. and S.F., the government's measure of housing inflation has shown little, if any, unusual movement recently. See http://www.economagic.com/em-cgi/charter.exe/blscu/cuur0000sah+1993+2005+3+0+0+290+545++0. One possible reason for the difference in popular perception and the government's measure and that the mainstream media pay a lot of attention to the places just listed and rather less attention to all the Red States between the coasts.

Is the CPI perfect? No. But please recall that the CPI, at best, can be used to measure inflation for an "average" household. Few people are exactly average. And there are enormous difficulties in computing an inflation rate even for the average household. While there are some reasons to believe that changes in the CPI may understate inflation in some ways, there are also some clear, strongly supported reasons that changes in the CPI overstate inflation. To mention just one such problem: it is very difficult to properly reflect quality improvements in the CPI.

So I conclude that while some prices, for some people, in some places have risen faster than average recently, Mr. Samuelson's point should be well taken and the CPI should be trusted enough to conclude that the last ten years or so have seen relatively modest inflation, certainty more modest than what the U.S. experienced in the late 70s and early 80s.

To Chris: while inflation in medical care has been above the overall average, it is still relatively modest and has not trended upward over the last ten years: http://www.economagic.com/em-cgi/charter.exe/blscu/cuur0000sam+1993+2005+3+0+0+290+545++0.

What about "hidden increases?" Please remember that there are some enormous savings going on as well. People used to spend thousands of dollars treating stomach ulcers--many can now take an antibiotic and get cured. Other people spent weeks receiving expensive hospital care after cardiac surgery; now they can often go home in a few days and their recoveries are also shorter and less painful.