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The ins and outs of inflation

Inflation. We think we know what it is. And we do. Sort of.

A 5.4 percent inflation rate means that prices are 5.4 percent higher than they were at the same time last year (this is actually the current figure as of September).

Like just about everything, it’s not quite that simple. That figure is an overall level. It does not mean that all prices have gone up a consistent 5.4 percent.

The current rate of inflation for the Consumer Price Index reflects some striking inequalities. Good news for sports fans: prices for spectator sports have fallen 5.5 percent (but who wants to go to a basketball arena in a mask?).

The highest is car rentals (110 percent). The one that affects most people is gas: 55 percent. By all measures, food is at the low end of the inflation scale, and increases there have been driven largely by the meat sector.

According to the U.S. Bureau of Labor Statistics, prices for fruit and vegetables increased by 2.72 percent over the past year. Meaning that $20 worth of produce in 2020 would cost $20.54 this year.

For a breakdown by commodity, see here.

The current round of inflation is “unusually concentrated,” points out The Economist—with used cars, hotel rooms, and airfares accounting for the majority of increases.

Using several different models, The Economist predicts an overall inflation rate of 4.1 percent over the next year (above the current rate, which is 4.4 percent, but almost twice as much as Federal Reserve target of 2 percent).

Wage increases? Probably around 3.3 percent for nonexempt, hourly, nonunion workers.

Transportation costs? Craig Fuller, CEO of Freight Waves, tells us that they have gone up 20 percent since 2019.

This figure is disputed by a number of comments to his article as well as by any number of other sources. A joint statement of produce associations on supply chain disruptions contended, “The cost of shipping containers has tripled or more in the past year, with estimates increasing from $3000 per container to $15,000 to $18,000, and even as high as $25,000 per container.”

The more you get into the economics of an industry, the denser the web of calculations turns out to be. Even if your transportation costs increase 100 percent, that doesn’t mean that your total costs increase by that much. You also have to figure in the percentage of total costs that are represented by transportation costs.

A statistic is in the end just a statistic. Any individual operator might face much higher or lower costs for idiosyncratic reasons that would never appear in a column of national statistics.

Economic projections are like weather reports: useful in a general way, but far from infallible—and more and more fallible the further the projection stretches into the future.

Richard Smoley, contributing editor for Blue Book Services, Inc., has more than 40 years of experience in magazine writing and editing, and is the former managing editor of California Farmer magazine. A graduate of Harvard and Oxford universities, he has published 12 books.