Thursday, September 13, 2007

Diverging rates of inflation is the real problem

Diverging inflation rates between, different sectors of the economy, is the real problem. Standard inflation figures do not show this.

Media outlets often talk about the annual rate of inflation that is published by our federal government. This figure is meaningless for the most part. When everything, in our diverse economy, is boiled down to one number, the figure does not say much. Some sectors of the economy have serious inflation problems while others do okay. A low inflation rate can be deceiving. When things like computers come down in price, it hides the fact that housing and health insurance go way up.

Our economy is shearing apart. It is splitting into high price and low price worlds. Many people, and businesses, get caught in this shearing. That is where the real problems occur.

Rather than basing so much news, and public policy, on the inflation rate, it makes more sense to follow what is happening between sectors of the economy. Housing and health insurance costs are in a different world than most of the rest of our economy. The annual inflation rate does not show this, but shearing between sectors is the real problem.

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