The Times reported last night that the Personal Consumption Expenditures (PCE) price index had its highest rate of increase since 1982 in November, and yet they (and most other news outlets) completely missed the bigger story:
The data came as a rising number of Omicron infections makes the inflation and economic outlook hazier. On one hand, the virus could slow the growth of the economy and of prices if it prompts furloughs at a time when the government is no longer stepping in to fill the void, costing households and hurting demand. On the other hand, surging global caseloads could push prices up as they close factories and keep cars, furniture, toys and other goods in short supply.
Even before the new variant surfaced, consumer spending failed to eke out a gain last month after adjusting for inflation, the Thursday data showed. Economists said the lack of growth might simply reflect that people shopped for the holidays earlier this year to guard against shortages — spending surged in October. But the blip underscores how challenging it is to understand incoming data about consumption, growth and prices in a pandemic-stricken economy.
James Fallows expressed the same frustration I feel whenever I read one of these "OMG inflation!" stories. Because, you see, households are much better off now than they have been for the last several years, for a simple and obvious reason:
I contend that [news stories like this] fit a general recent pattern of emphasis from the “serious” media: placing vastly more stress on the threat of inflation, which indeed is getting worse, than on the evil of unemployment, which is getting much better. (For more about this pattern of coverage, see Eric Boehlert among others.)
As a reminder: current U.S. job prospects are not simply “better” when judged on the historical curve, with these record-low unemployment claims. They are almost unbelievably better, in light of the sudden loss of more than 20 million U.S. jobs in just one month last year, as the pandemic took hold.
The over-emphasis on inflation numbers, relative to employment trends, blurs the fact that while both are problems, for the people living through it unemployment is much worse.
Inflation erodes a family’s purchasing power. Unemployment eliminates it.
That makes a huge difference.
Yes. We have mild inflation compared with what some of us remember in the 1970s and 1980s, but with miraculously low unemployment numbers which we did not have back then.
Who worries about inflation the most? People on fixed incomes, surely; but the Social Security Administration will give pensioners the highest cost-of-living adjustment in 40 years next Saturday.
No, the biggest victims of inflation are net creditors. As we get a bit of post-disaster price increases with concomitant wage increases, the debts we owe (mortgages, student loans, even credit cards) become easier to pay. In other words, their real value has declined in the past 12 months. So net creditors—big banks, hedge funds, the like—are losing money. Everyone: awwww.
Expect, therefore, to see more emphasis on inflation numbers and less on employment numbers as the economy re-adjusts after 20 months of pandemic-induced coma. And expect that your student loans and mortgages will be that much easier to pay off in the near future.