| This article makes a number of misleading claims I think stemming from a misunderstanding of inflation- which does not mean "price increase" but rather "a general increase in the prices of goods and services in an economy"- that's right, we define it as an average. Okay, what about the variation? Definitely, prices for different goods change differently, and the NYT even has a calculator that estimates it for you based on your consumption:
https://www.nytimes.com/interactive/2022/05/08/business/econ...
Try it out with a few different choices- you'll see that pretty much everyone experiences significant price increases, out of line with the previous decade- so the CPI while not perfect definitely tells us something. The fact that the standard deviation is greater than the mean does not tell us its not meaningful- for example, if I give you 1 million samples from a normal distribution with mean 0.1 and std 1.0, you can meaningfully tell me the mean is greater than 0. Individual components of the price index don't give a useful item to take the variance of, because very few people have all their expenses in one component. We'd actually like the dispersion of the change in expenses for each person/company to understand how much expenses rise in general. I suspect this will be significantly smaller since most people have 'similar' spending profiles, at least compared to the hypothetical consumers which only buy one component of the price index. Okay so why do prices change differentially more during inflation? This is a tough one, and recently there are obvious confounding factors (covid) that make it difficult to dissect. But I think even Friedman would expect this, because he claims that quantity of money leads inflation by 6 months-2 years, and we wouldn't expect it to propagate through all supply chains at equal speed. This also means that the standard theory is predictive and can't just be an accounting identity- the prediction (which we can make after the huge increase in M2 in 2020) is that prices will rise, with some delay but eventually about 30%. I'm not counting any change in the output of the economy here, so with covid disruption I wouldn't expect this to have particularly good accuracy. Let's see how it pans out! Finally, we can look at things like the price of gold: it rose significantly pretty much in line with the M2 money supply. I don't know of anything that would significantly affect gold supply recently, so it would seem the demand comes from devaluation of the dollar or fear of it. |