Economic Perspective: Good and Bad Price Information

MARY WALDEN:

“Today’s program looks at good and bad price information. Mike, the overall inflation rate, which tracks average price increases, has been edging up, but is still hovering at a modest range of between two-and-a-half and three percent. Since this is an average, it hides the vast variability in price changes for individual products and services. Give us some examples of these differences.”

MIKE WALDEN:

“This is very important because when I give talks to audiences, and I talk about inflation, and I point out that inflation, although it’s rising a little bit, has been very modest. I often get people who say back to me, ‘Yes, but this has gone up so much and much.’ And of course it all depends on what you’re looking at.”

“So let’s look at some differences over the last decade. Now over the last decade the total inflation rate has been around 20 percent, a little less than two percent annually. So that’s actually really good, but if you look for example at college tuition and rent; college tuition has gone up a total of almost 50 percent over the last decade, and rent is not too far behind. Rent has gone up 34 percent. So that tells you if you’re focusing on those two items you’re thinking, ‘Wow, inflation is going through the roof.’”

“But there’s some good news. If you look at clothing, we all like clothing. We buy a lot clothing. I’m into ties. Clothing prices are up, and this is in the entire decade, only four percent. And Electric rates, another thing people use, up only two percent. Wireless cell phone service has actually gone down 16 percent.”

“So I think this is a good example of how when we talk about an average inflation rate we got to remember average. That’s looking at an average over many, many different commodities and services, and when you get into looking at those individual commodities and services some have gone up in price a lot more, some have gone up less, and indeed some have actually gone down.”

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 personal finance.