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Differential Inflation

September 19, 2008, 11:22 am

I am seeing an increasing number of articles of late about differential inflation rates, and how changes in income inequality may be overstated by using a single inflation rate for rich and poor.  The argument goes that lower income folks who spend a relatively high share of income on goods that Wal-Mart and China have made cheap are experiencing a lower inflation rate than wealthier folks who have seen huge price increases at their favorite Four Seasons resort.  Mark Perry has two interesting articles along these lines.

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Category: Economics
  • Sandman

    I would suspect that the biggest benefits come to those just above the poor all the way up to the middle class. The basic necessities in life - food, shelter, clothing - don't seem to be much cheaper (and in some cases are more expensive). But those things that make life better - DVD players, cars, computers, appliances, etc. - are all constantly getting cheaper or better. And inflation rates do a bad job of measuring improvements to things. A $15,000 car today is functionally similar to a $15,000 car from 1990, but no one would suggest that today's car is better in almost every way (comfort, safety, radio, etc.) I just don't know how you measure that improvement in life.

  • xpatUSA

    My view is that, if we do use the word "inflation", we should qualify it with that which is being inflated. Thus, instead of just saying "inflation rate" or "rate of inflation", we would say "rate of inflation of the M3 money supply" for example.

    Having said that, is not "inflation" usually taken per se to mean the rate of change of the price of a fixed basket of goods? (That is, before our fine government distorted that meaning with weightings, hedonics, substitute of "equivalent rent" for mortgage, removal of fuel and other costs, plus all those other tricks).

    If so, then the fixed basket of goods itself is incorrect - if the intention is to actually include les riches in any discussion on the cost or the quality of living.

    Ted