A Note on the Consumer Price Index
"...With the cost of living always rising, not falling, it's a good job there's so much more money around to help pay for things. Right...?"
SURELY the 20th CENTURY'S greatest marketing coup - besides making cigarettes taste of freedom and youth rather than the Sandakan death-march - was kidding the world that "inflation" meant rising prices.
Long mistaking symptom for cause, what hope do we have of defending our money today?
"The word 'inflation' originally applied solely to the quantity of money," as Henry Hazlitt, sometime Newsweek and New York Times editor, put it in 1965. "It meant that the volume of money was inflated, blown up, overextended.
"To use the word 'inflation' to mean 'a rise in prices' is to deflect attention away from the real cause of inflation and the real cure for it."
In short, words matter - and not least when people try to save and plan for the future. Because our drive to label the world dictates our response to it. Use the wrong label, and you're sure to screw up both your understanding and your reactions from there.
"Over the past 100 years the retail market has changed tremendously," notes Alan Kackmeister in a recent paper for the Journal of Money, Credit & Banking. "Transportation is easier. Stores are larger and less personal. Product brands have become more important. Food and other necessities make up a smaller share of consumption expenditures."
To this list of cost-cutting advances, Kackmeister could have added no end of technological and cut-price progress - mechanized and robot production, chemical fertilizers, those two billion people pulling down wage-costs after the Iron Curtain and Great Wall of China both fell to the globalized market...
Yet despite all these advances in making everyday stuff, what's now called "the cost of living" has barely ever failed to stop rising. The official Consumer Price Index in the United States has risen 11 times over in the last 90 years. Here in Britain, one pound now buys less than 3% what it did in terms of "making ends meet".
Good job we've got so many more Dollars and Pounds to help pay for things, right?