Explaining the inflation rate

We need to stop talking about inflation and start talking about how WAGES ARE NOT GOING UP! Greedy corporations are not PAYING PEOPLE WHAT THEIR LABOR IS WORTH!

The problem is WAGE STAGNATION, not inflation.

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The problem is both...

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- Some inflation is a good thing. It keeps money moving, which is absolutely crucial to the system as it is. Wages do need to rise with or outpace it, though.
  
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- I agree that right now we're facing both at the same time, but either one in isolation would still be a huge problem.
  
  Inflation at the current (reported) rate of ~3-4% is healthy for almost any economy, since it promotes spending your money on high quality, long lasting goods, or investing your money to promote growth of businesses. A little depreciation of money each year dissuades people from sitting on their cash. Even without a stock market and capitalism, inflation is an incentive for people to put their long term savings into government savings bonds, which allows for more public development today without more taxes.
  
  BUT if inflation is too high, (even with wages increasing at the same rate, which never happens) it's extremely difficult for people to save cash to make large purchases. Any economy that uses money needs for people to be able to afford to wait a while with their money before deciding what to do with it, otherwise people are forced to settle for lower quality goods or whatever investment opportunities are available on short notice. Less time to make wise choices with money means less productive use of that money, meaning a less productive economy overall. Not what we want.
  
  And of course, if wages don't keep up with inflation, either because inflation is running away or because your government has refused to increase the minimum wage at all since 2009 when the national currency was worth 1.47 times as much as it is today, 15 years later (cough cough), then obviously you're going to run into some problems with people's ability to afford things.
  
  That said, I think some shady manipulation to the consumer price index is going on to make the reported inflation figures look a lot lower than the actual increase in cost of living that the majority of people are facing. The biggest offender is housing costs skyrocketing in the past decade, but not uniformly across the US. The result is that areas where this hasn't been nearly as big of an issue falsely "balance out" critical problem areas, where people are practically being forced to either relocate or become homeless due to how rapidly housing prices have gone up.
  
  There's just so many different things that need to go right for an economy to be prosperous for everyone who contributes to it, and right now the people in charge of steering that economy are getting kickbacks from the people who stand to benefit the most from taking it off the rails.
  
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In the US, average hourly wages have increased more since 2019 than consumer prices. But as always, focusing on averages overlooks the impact on the lowest paid workers and anyone relying on social welfare payments. These are the areas where income often falls behind prices and it's why many people still feel like things are getting worse despite the grandstanding from governments about how great their economic management is.

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- I would argue that averages actually don’t mean dog shit, and that they’re only used to pit the proletariat against each other. There is an absolute minimum someone can make, but there is not absolute maximum. At least not yet.
  
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- I just know mine ain't going up
  
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- the median household income in America has increased $6,000 since 1990
  
  If this was adjusted for inflation, this increase would be $115,000
  
  https://nces.ed.gov/programs/digest/d22/tables/dt22_102.30.asp?current=yes
  
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We saw a huge raise in wages during the 15minimum push. Still hear the same complaint about not being paid enough. Hell, billionaires get raises, so while I do think people should get more for the work they do (make a company money, earn more money), it definitely isn't the only thing that has to change.

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Scary this has to explained but this is a good eli5.

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Yeah many people don’t realize that inflation is “price increase year over year” and think it means “current price.” Like lowering inflation will make their groceries cheaper

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- Price decreases are actually negative inflation and have all sorts of whacked out effects on an economy. It was a concern during COVID due to the huge drop in consumer spending forcing some prices to start to decrease.
  
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As I explained to my boss, you are paying me less if inflation has gone up, and I didn't get a raise to at least match the rise. Bro started to explain to me how any child would run a lemonade stand with this piggy look in his chubby eyes. Business Budda needs a punch to the gut.

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Hey, I was told that everything that goes up must come down. So where the hell is the deflation?

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I know this is a joke but deflation can be scary too. Basically if it becomes a pattern then consumer spending will crater since people know if they wait their money will be with more in the future. Obviously this effect is less on stuff people have to buy to survive but it's still not desired.

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- Yeah inflation means noone can afford stuff but there is almost maximum employment
  
  Deflation results in a lot of stores shutting down since noone is buying anything anymore
  
  High inflation can mean noone can afford more expensive stuff, too, and that those shut down - but generally it's a better idea to have a small amount of inflation
  
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- Consumers are not going to wait months/years for the real value of their money to increase. They want their gender affirming pickup trucks now.
  
  It hurts the government most because of the debt load it has accumulated, and that is why there is such a strong interest in assuring that deflation never occurs.
  
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I gained weight, and I keep gaining weight. When do I deflate? D:

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yearly very rare in any given country, but looking at individual months, it can be seen sometimes in the wild, the footage is a bit shaky and low res tho

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But then how will the CEO's afford their third mega yacht.

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- Their megayachts would actually become cheaper too :)
  
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So where the hell is the deflation?

Here's a few examples

Japan experienced a long term period of deflation during its "Lost Decade". China's currently in a deflationary spiral, which kicked off in 2023 and ran for most of the year.

China is a perfect example of an economy with deflation or dangerously low inflation. In 2023, China recorded a successive series of declines in its CPI, which began to fall in January 2023 and continued till July 2023, dropping from 104 points in January to 102.7 points in July. CPI improved for the next two months but dropped again in October and November 2023. In December 2023, it marked the longest streak of CPI declines in China since 2009. Similarly, the producer price index (PPI) has been in contraction for more than a year. According to Bloomberg Economics, the biggest contributor to the decline in CPI in China was falling food prices as the food prices plunged for six consecutive months from July 2023 to December 2023, dropping from -0.155 to -0.618. Among food, pork prices saw the biggest decline which plunged 26% in December 2023.

Another big economic issue in China is its property market crisis. On January 30, The New York Times reported that China’s home sales dropped by 6.5% and real estate development plunged by 9.6% in 2023, as per the Chinese investment bank, Dongxing Securities Corp Limited (SHA:601198). In December alone, property sales were down by 17.1% year-over-year. The chief economist at Natixis, Alicia Garcia Herrero said the property market has not touched bottom yet. Herrero emphasized, “There is still a long way to go.” The property market crash in China has impacted many firms and over 50 Chinese property firms have defaulted on debt, including the two market giants: The China Evergrande Group (OTC:EGRNQ) and Country Garden Holdings Co Limited (HKG:2007).

Thailand, Libya, Jordan, Bolivia, Azerbaijan, Saudi Arabia, Denmark, Italy... Export-oriented countries can periodically find themselves glutted with their own surplus when supply lines break down and foreign markets fail to absorb the excess.

Shouldn't be a surprise that China, being a global export leader, is caught in the thick of it due to the emerging US/China trade war and the shut down of the Suez Canal.

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It's an issue with how inflation numbers are reported and I continue to believe that it's done intentionally to confuse people (or reassure them).

It's reported year on year but people don't plan their finances year on year, they think back further than the last year so inflation should be reported both year on year and with a reference year.

It's funny that other economy stats are actually reported in comparison to major events but not inflation. "The economy has improved X% since the 2008 financial crisis!" is the kind of things that's getting reported, well, inflation should be reported the same way. How much has it increased since January 2020? That's what people are feeling right now, not the 3% since August 2023.

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It's specially a problem in the US, and other selected third world countries, where they don't have yearly minimum wage increases to offset inflation. I live in Brazil, and I get a raise that is always higher to the yearly inflation (thanks for my union), so yes, things are higher as ever, but my salary too.

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- I'm in the US, I've got a solid job, everyone I know says I'm lucky to get raises every year. My raises are still consistently slightly under inflation. Lots of the people I work with don't understand why that means we're not actually getting raises, and nobody wants to rock the boat and risk the small amount we do gain each year. It's wild over here
  
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- Annual adjustment or annual + step increment?
  
  Long term the annual adjustment will usually track inflation or be pretty close to it but until you've reached your last step you get two wage increases a year so it feels like you're beating inflation...
  
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Well then people might start asking questions like why X is up Y% but the ingredients for X have only gone up Z% in total

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- But people are already wondering that...
  
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They think people are too dumb to understand that zero is not the target for inflation. They want to make the good news they're reporting sound like good news.

You can disagree with their approach, but where they're coming from makes sense. After all, the OP in the screenshot exists.

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I think it's reported that way because traders and other people adjacent to the financial sector are trying to figure out when the Fed is likely to lower rates. I don't really see inflation numbers reported outside financial articles.

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To give the original question answer slightly more (probably unfounded) credit, there are a lot of people out there who know the basics of what inflation is, but also seem to have a fundamental assumption that in a "normal" economy, wages will also increase at the same pace as inflation, resulting in a net zero effect on a person's buying power overall. Even though, yes, things are always getting a little more expensive in absolute terms, they don't seem more expensive. So the answer to the question someone with those assumptions might have actually been trying to ask is that even if inflation returns to a "normal" rate, wages have remained stagnant for a long time and aren't keeping pace with inflation like they used to, so now things actually are more expensive in a relative sense.

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People really need to know what "rate" means.

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Or we should switch to talking about affordability indices rather than inflation. Inflation isn't a particularly informative figure for most people. What people really care about is the purchasing power of their income, not what the change in dollar value is.

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I work with statisticians who also struggle to differentiate a decrease from a decrease in rate of increase.

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The other issue is inflation isn't consistent across all product prices, some have been in short supply or high demand, and others have prices gouged because there isn't enough competition...

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People don't understand this about inflation and it will disappoint them very soon once inflation is fully back to rates we saw pre-pandemic.

Grocery prices aren't coming down. Housing prices aren't going down. Utility costs aren't going down. The best we can hope for is for them to not increase as fast as they have the last four years and for the usual fluctuations in things like gas or electricity costs to fluctuate down more than up.

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The best we can hope for is for them to not increase as fast as they have

That's what inflation going down means. Inflation is the rate in which prices increase. Saying "inflation going down" means that the rate prices increase is not as much. "Inflation going down" still means prices are increasing. People are confusing "inflation going down" with deflation, which means prices are decreasing.

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- Yeah, that's exactly what I mean. I don't think most people understand that, and it will lead to people losing faith in experts when they're told inflation is back to pre-pandemic levels but prices aren't.
  
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Second order derivatives mmmmmmmm

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This is why we need to teach people calculus. At the very minimum - derivatives.

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wait til they find out that the derivatives market is vastly larger than the stock market itself.

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- I'm not sure if you're joking, but those are two different types of derivatives.
  
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My baby boy was born at 8 lbs 4 oz.

Five years later he weighed 60 lbs.

Five years after that he weighed 110 lbs

Five years after that he weighed 130 lbs

Five years later he weighed 180 lbs.

Five years later he weighed 195 lbs

So his weight gain is down. But now he's a fully grown adult. When does shrink back down to the size of a baby?

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old lady deflation:

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I think the closest you'll get to that is when he starts a small economy of his own.

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This is one way to own the lbs.

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Push is down.

Pull (which until the 80s was theoretical) is way up.

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https://www.youtube.com/watch?v=jsU1AKrlc4U&t=101s explains how the politicians frame it

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Why is this segregated by race?

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Replied under the wrong post?

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- I don’t think so? I’m posting in reply to a picture that describes how to calculate currency inflation in certain markets and I don’t understand how skin color has anything to do with that.
  
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