Economic Perspective: Where is Inflation Hot and Cold?

MARY WALDEN:

“Today’s program asks where is inflation hot or cold. Mike, economists define inflation as the average rate of price gains for all products and services bought by consumers, but does this measure disguise some key differences among specific buying categories?”

MIKE WALDEN:

“It definitely does. When I give talks, and I tell people, ‘Well the average inflation rate has been about two percent a year,’ I will always get hands to go up during the QA to say that I bought this or I bought that, and it’s much more expensive than it was last year by more than two percent.”

“So yes, we have to remember that it’s an average over all products and services. Now we do see some big differences when we break that two percent down. For example, housing prices, both in terms of single family homes as well as apartments, average over those, those prices have been going up at about three and a half percent a year, just shy of twice the average inflation rate.”

“Products for services are going up right at the average for all products and services, about two percent a year. Where we are really seeing bargains is in manufactured products. Those products on average are only going up about one-half percent per year, and I think that’s because we have a lot of foreign made products that are keeping those prices down.”

“We also have technology making it easier and cheaper to make those manufactured products. So I think this is important to recognize that everything, every product, every service, every home, every apartment doesn’t does up in price at the same rate. There are clearly distinct differences.”

Mike Walden is a William Neal Reynolds Distinguished Professor and Extension Economist in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook and public policy.