Inflate!

Here’s an interesting chart.

The eurozone version of this is the debate about to what extent the relative increase in prices in southern Europe in the 2000s represented an increase in wage costs, and to what extent it represented wider inflation. I certainly remember a lot of concern about “mileuristas”, and of course the Greek version of living on €1,000 a month was living on €700 a month. The classic example is the fact that the CPI doesn’t include housing costs, and there was a housing bubble, dammit.

I used to be quite snarky about people who claimed there was really huge inflation because they saw someone selling this or that for so much and it wasn’t like that in my day. I am less so now. In a real sense, if inflation doesn’t include food or housing or healthcare or energy, is it a useful measurement?

So you might think I would be pleased at the content of this piece. But I’m very far from it. The reason is, basically, Piketty.

If you want r to get under g and stay there, inflation and financial-repression is a big part of the picture. And for this to be of any use, it has to be proper inflation – i.e. the sort that includes wages. You could make a case that the price stability the ECB achieved was actually more like “wage stability”. I wonder if prices expressed in terms of earnings is a measure we should monitor.

2 thoughts on “Inflate!

  1. Pingback: Inflate!

  2. Another problem is that, when a new phone (for example) goes into the market and displaces an older, worse phone at the same price this is AFAIK counted as a fall in the price of phones (because for the same price you get a better phone).
    But very old phone don’t stay on the market forever, so at some point consumers are just forced to buy newer and better product, meaning that this “deflation” in phones and other technologic gadgets is perceived by people as better phones, but not as a lower cost of living.

    Thus if the cost of living due to e.g. housing rises, while the cost of living due to phones doesn’t fall, the total cost of living (perceived as inflation) rises.

    PS: you have some problems on your comment form, perhaps due to a database change

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