Inflation worse to those on flat income

February 29, 2004|By JAY HANCOCK

Kevin MacKenzie of Perry Hall says (politely!) that I'm full of garbage, and of course he's right.

Last Sunday's column on the continuing drop in the "core" inflation rate, he suggests, was based on academic nonsense that bears no relation to his life or any other aspect of reality.

(Again, I'm paraphrasing. Mr. MacKenzie's language was far more cordial. Take note, e-mail ranters.)

The column noted that consumer prices besides food and energy have barely budged since last year, which might signal a supply/demand imbalance and a weak economy blah, blah, boolah.

Several readers such as Mr. MacKenzie wondered whether the Baltimore I write from is the one on the edge of the Chesapeake or the one in galaxy Zoltron in the seventh dimension.

"The things I buy ... have increased by double digits in a year," writes Mr. MacKenzie, who's 46, married and has a magazine-distribution job. "The mantra of 'no inflation' seems to be more textbook wishful thinking than everyday reality."

Obviously it's true.

Economists like to strip food and energy prices from the overall inflation index because those items flop all around and sometimes hide long-term trends when short-term readings are taken. But even this core rate shows some inflation.

More to the point, nobody can live without food and fuel except Ralph Nader. And food and fuel are both getting substantially more expensive, slow economy notwithstanding. The price of cookies popped by 1.5 percent between December and January, according to the government. Yikes! Buy Oreo futures. That's almost a 20 percent annual rate of increase, compounded monthly.

You don't want to know about breakfast sausage: up in January over December at about a 40 percent annual rate.

What about natural gas? Up at a 50 percent rate. And please do not ask about heating oil: At January's pace of increase it would double in price by 2005.

Yeah, it probably won't. Food and energy prices truly are volatile and tend to plunge a month or two after they soar. But even over the longer term, food and energy have been appreciating relatively briskly and have boosted the overall inflation rate.

The all-inclusive Consumer Price Index rose by 1.9 percent from January 2003 to January 2004 - much faster than the 1.1 percent increase in the core rate for the same period. Last year the CPI rose by 2.3 percent, the same rate of increase as in 1997, when almost nobody was talking about the death of inflation.

Local inflation has been even worse, which helps explain Mr. MacKenzie's experience.

Driven by a relatively strong regional economy, a flood of federal dollars, strong housing prices and continuing medical inflation, the Baltimore-Washington CPI rose 2.8 percent last year, a full half-percentage point above the national rate.

Another thing that makes inflation look bad is a given household's exposure to items that are getting especially pricey. The CPI is supposed to reflect purchases of the average urban consumer, but average consumers are almost as rare as consumers who don't eat.

If you've been paying college tuition, health insurance premiums or property taxes lately, inflation doesn't look weak, let alone dead.

But here's what may be the biggest piece of the feels-like-inflation equation: stagnant incomes. Although recent price increases are small relative to history (the CPI rose 13.5 percent in 1980 and 5.4 percent in 1990), the pinch factor may be worse because household incomes are practically flat.

Last year wages and salaries rose by only 2.85 percent, their smallest increase in almost a decade.

Mr. MacKenzie's pay has not been booming, either, he said on the phone, and neither has that of his wife, Lisa, 42, who works for Baltimore County. Meanwhile, he says, "gasoline, natural gas, home repair, prescription drugs, college tuition and local taxes, tolls and fees are much higher than a year ago."

Overall price escalation will probably not roar back to rates of a decade or two ago. But if inert personal income makes 2.3 percent inflation seem like 10 percent, that's almost as discouraging.

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