I’m enough of an econ nerd to find things like this interesting on a Saturday afternoon:
(If you must have some context, the video explains a little bit about the Consumer Price Index and inflation and then discusses an alternate measure of inflation that might be an improvement on the status quo. With a bee analogy of course.)
I’m pretty sure that I am in the minority on this point, but personally I find it difficult to get all worked up about inflation. This is probably because my sometimes too simplistic view of the world concludes that inflation-indexed investments and wage contracts would render inflation pretty inconsequential. (If prices go up by 5% but so do my wages and dividends, then who cares? I suppose this speaks to my lack of net worth, since I don’t think that inflation-indexed investments actually scale the amount of principal to cover inflation. On the flip side, I get a good deal on money I’ve borrowed when inflation is high, since the money is worth less when I have to pay it back, so maybe it’s all a wash.) I suppose that a the very least I get the general distaste for uncertainty, which makes efforts to manage inflation intuitively appealing. The video is pretty spot on in its discussion, especially when it explains the difference between demand-driven price changes for individual goods versus changes in the overall price level. (What it leaves out is that, in its example, the increase in the price of tea would likely be coupled by a decrease in demand and thus a price decrease of things that are substitutes for tea, so it’s not clear what the overall effect on the CPI would be.)
In general, the Consumer Price Index overstates the effective cost of living increases, since it assumes that people keep their consumption constant as prices change and just deal with the price increases. In reality, people are able to shift their consumption away from the things that got disproportionately more expensive, at least to some degree, and thus don’t have to just sit and accept the price increases.
The power of suggestion is a surprisingly powerful force, since my throat hurts and I all of a sudden decided that I need some tea with honey.