6 Facts: What We’d Like To Know About Inflation (and Milk)

In Brazil during the 1990s, first thing in the morning, shoppers raced to supermarkets. At a monthly inflation rate of 80%, a dozen eggs could cost one dollar on Day #1, two dollars on Day #30, and $1,000 after a year. Knowing prices would soon go up, early in the day, customers tried to front run the supermarket employees who were placing new price stickers on most items.

Nowhere near Brazil’s plight, the U.S. inflation rate, November 2020 to November 2021, was 6.8%.

Let’s take a look at five other inflation facts. (I chose what I found interesting.)

Five (Other) Inflation Facts

2. Milk is more expensive in Philadelphia than NYC.

The reason is the Pennsylvania Milk Marketing Board. Amazed, I discovered that Pennsylvania has a price floor for milk. As a horizontal line above equilibrium, government prevents the market from setting the price. Instead a Milk Marketing Board decides.

I copied three lines from a much longer list of cities. The prices are for a gallon of whole milk during 2021. You could have paid 20% more in Philadelphia:

3. Looking back to 2001, we would see that $1 then is $1.57 today.

From a BLS (Bureau of Labor Statistics) graphic that starts in 2001, I selected beef, milk, eggs, and bread. Again, using #2, above, you can assess the price of Pennsylvania milk:

4. We can divide the CPI (Consumer Price Index) into sticky and flexible prices.

Flexible prices reflect current changing market conditions whereas sticky prices are more forward looking. Because they are set with an eye on the future, the direction of sticky prices can foreshadow inflation.

I’ve copied a partial list of flexible and sticky prices from a Cleveland Fed paper:

In the Atlanta Fed’s Dec. 10th update, sticky prices are moving upward but not nearly as much as flexible prices. As of November 2021, CPI sticky prices were up 3.4% while CPI flexible prices soared a whopping 17.9%:

5. The last time the U.S. had double-digit inflation was during the 1970s.

Certainly not in the “hyper” category, inflation touched a 12-month high of 13.3 percent from 1978–1979. The culprits included climbing oil and food prices from the supply side and monetary policies that propelled more demand:

6. Moving from the U.S. to the world, Pew compared inflation rates.

Argentina tops all with a 51.9% inflation rate for the third quarter, 2021 while Japan is the only nation with a negative number:

With Brazil at the top of the “plus” list and Slovenia at the bottom, then we move to deflation in Japan. Still do note that although Argentina is in the decrease list at the bottom, still its inflation rate is gargantuan:

Our Bottom Line: Price

As economists, remembering the basics, we have to return to price. Prices are messengers. Because prices carry information, inflation can distort what they say to us.

Returning to where we began, with 6.8% inflation, in just four years, you need $1.30 for a dollar’s purchase today.

My sources and more: With inflation in the news, the articles are everywhere. Ranging from interesting stories to dry data, all are enlightening. At first, the Atlanta Fed Inflation Dashboard and a Cleveland Fed essay on the CPI came in handy for today’s post as did Pew Research. Also, I needed data from the December CPI report for April and this NBER paper. Then, the NY Times took me back to the great inflation and forward to now. (Please note that today’s post includes some previously published sections of econlife. currency.)

Originally published at https://econlife.com on January 12, 2022.