Commentary
There have been many sighs of relief exhaled across the United States in recent days as inflation continues to slow.
New data shows that Consumer Price Index (CPI) inflation has declined for the sixth month in a row, down from 9.1 percent in June 2022 to 6.5 percent in December 2022. This is all well and good, and a welcome reprieve. But we shouldn’t lose sight of the fact that consumer purchasing power has declined by some 15 percent in two years, and inflation remains well above the Federal Reserve’s target inflation rate of 2 percent.
Nor should we forget that the aggregate CPI figures underrepresent what the American consumer is experiencing in two important and fundamental ways. The first is that the costs most important to most Americans, namely, food, energy, and shelter, have risen much higher than aggregate CPI. Secondly, the CPI figures (which compare one year against the previous) tend to hide the “base effects” of inflation, meaning the compounding of rising prices over multiple years. The result of both is to distort and underestimate the real impact on the shrinking wallet of the American working and middle class….