The consumer price index

The chapter about the CPI (Consumer Price Index) in Who Is Government? edited by Michael Lewis,  was interesting and helped me understand what we read and hear about all the time.

I had a general idea of what the CPI means but John Lanchester's explanation of it in the chapter, The Number, made it much more understandable,. As he points out the CPI is an imperfect indicator but gives us a rough idea of how the economy is functioning. Most Americans though have no idea about this concept and its use. 

The economy under Biden was doing great, one of the best in the world, but people focused, supposedly, on the "price of eggs" if you believe the pundits, and elected Trump who has trashed the economy with his tariff nonsense. We are in for some very dark days in the coming couple of years due to his and his administration's incompetence.

So the CPI is only as good as our understanding of it and the use we make of it.

The system is biased against wage earners

by Charles M. Lepkowsky, Ph.D

There are also flaws (intentional?) in 'the system' that keeps most of us 'down,' especially limiting upward mobility now vs. 50 years ago.

Wages have not kept pace with the cost of living. Even the very conservative US Department of Labor's inflation calculator indicates that $100 dollars in 1972 would buy as much as $687.81 today:

https://www.in2013dollars.com/us/inflation/1972?amount=100

The median US income in 1972 was $11,120.

https://www.census.gov/library/publications/1973/demo/p60-90.html#:~:text=Money%20Income%20in%201972%20of%20Families%20and%20Persons%20in%20the%20United%20States,-December%201973&text=Reflecting%20the%20resurgence%20of%20the,median%20family%20income%20of%20%2410%2C290.

The median US cost of a home in 1972 was $27,571.86.

https://dqydj.com/historical-home-prices/

The cost of that 1972 home divided by the median 1972 income is 2.48. IOW, a house cost about 2 1/2 year of income.

That equation carried over to rental costs, which were commensurately affordable.

The median income in the U.S. in 2022 is $44,225.

https://www.zippia.com/advice/average-american-income/#:~:text=The%20average%20personal%20income%20in,in%20the%20U.S.%20is%20%2444%2C225.

The median US cost of a home in 2022 is $392,000.

https://www.ramseysolutions.com/real-estate/housing-trends#:~:text=In%20early%202022%2C%20the%20median%20home%20price%20in%20America%20was%20%24392%2C000.&text=That's%20up%20from%20%24305%2C000%20in%202021.

The current cost of a home divided by the current median income is 8.86. IOW, a house today costs about 9 years of income.

That means that dollar for dollar, housing alone costs 3.6 times as much as it did in 1972 (an increase of 260%).

There are numerous other factors that keep most of us from improving our financial status, but everyone needs a place to live.

Charles M. Lepkowsky, Ph.D. 

Solvang, CA

clepkowsky@gmail.com

U.A. inflation rose 7.5% in 2021.

US inflation rose 7.5% during the 12-month period ending in January, according to government data released yesterday, the largest such increase since February 1982. The consumer price index, a proxy for inflation that tracks the price of a basket of goods and services (see 101), rose 0.6% in January, exceeding the 0.5% increase seen in December. Inflation has exceeded a 5% annual rate for the past eight months. 

 

Higher inflation means consumers can buy fewer goods with each dollar they spend. The core index, which removes the sometimes-volatile food (up 7%) and energy (up 27%) components, rose 6% year-over-year—still the highest hike since August 1982. See data for the full basket of goods.

For more click here.