Economic Perspective: Is Inflation Really Subdued?

MIKE WALDEN:

“Today’s program asks if inflation is really subdued. Mike, the prices of many consumer products and services have been affected by the economic impacts of the coronavirus. Do we know what the net results have been?”

MARY WALDEN:

“Well the official numbers show that inflation has been kept very, very low by the virus. In fact, the numbers show that the inflation rate has been going down for several months. However, due to supply problems, due to other changes people have altered what they buy, and the inflation rate is calculated based on a set of fixed factors that say you buy a certain percentage of your items on food, you buy a certain percentage of your items on gas, et cetera. The issue is that research shows these factors have changed, and in fact they’ve changed in such a way that we’ve actually been buying more of what we purchase from those items whose prices have gone up, particularly grocery items.”

“So there have been some recalculations of the official inflation rate that show that actually in the last several months rather than the inflation rate going down it’s actually gone up; mainly due to the fact that we have seen big price increases for many items in the grocery store. Now I do think this is temporary; that once we move beyond the virus, and especially as we open up the economy, and we fix all those issues that were caused by the virus we will begin to see price levels go back to more normal levels.”

“But I do think that people who are saying, “You know what? I just don’t see low inflation. I’m seeing high inflation. They do have a point.” 

Mike Walden is a 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.