by Dave Munger
Whenever I call my stepbrother Mark, one of his persistent complaints is how prices are going up. “Everything costs more,” he tells me. Yet for the past two years, he's received no increase in his Social Security Disability check. His money, which never went very far, now barely seems to be enough to get by. But when I read about inflation in the media, a very different picture emerges. Kevin Drum says inflation is the lowest ever. Paul Krugman says that worries about inflation are misplaced. What's wrong with this picture? Could Mark have a mistaken impression of what things really cost?
I decided to take a closer look at how inflation figures are actually derived, to see if the numbers are painting a misleading picture of what real people pay for the goods they need to survive. Inflation in the US is tracked by the Bureau of Labor Statistics (BLS), which has a very informative web site explaining exactly how they arrive at their figures. Prices are tracked by looking at a typical “basket” of goods and services people buy, currently set at a value of $100 in 1983 dollars. This is the Consumer Price Index, or CPI, which is used, among other things, to determine the annual increase in Social Security payments. The most recent BLS figures put the CPI at about 220. So the stuff that cost $100 to buy in 1983 now runs you $220. That's the basic idea, anyways.
In practice, my purchases, like those of most people, are a lot different from what they were in 1983. I'm not buying a lot of vinyl LPs any more, and my budget for skinny pink ties has significantly diminished. In 1983, I didn't have a cell phone or internet service bill, and instead of buying iPad apps, I was pumping quarters into Donkey Kong and Q-Bert. How does the BLS account for all that?
