In September 2021, the Consumer Price Index (CPI) rose by 5.4% above the level of prices in the same month a year earlier. The media declared an economic avalanche.

That September figure was indicative of what’s been going on since the Covid virus receded from the fear centers of many brains. The September 2021 figure was abnormally high; not once in the preceding ten years had the September index exceeded 2.3% on a year-over-year basis.

Such a high figure does not mean the prices of what you buy went up by 5.4% or will go up by that amount in the near future. Likewise, the prices of individual CPI components may be rising or falling; they do not move in lockstep.

Take a trip with me to the grocery. Good bread (not that paste substitute for real bread) increased in price by 2.8%. The peanut butter we’ll buy carries a price 6.2% above the year earlier figure. But both the bread and the spread saw increases that were 2% lower than the increases of 2020.

If we add some roasted coffee to our shopping cart, the prices are 4.3% higher than a year ago. But knowing you, let’s add some beer to our purchases; the price are up 3.3%. Yes, I do see the whiskey section, and there the prices have advanced by just 1.4%.

Let’s not forget the pet food. Those vital vittles for Petals and Bluster are priced 1.6% higher now, after falling in 2020 by 0.8%

On the way back, we’ll stop for some gas where the price is up a whopping 43% but remember those gas prices fell by 16% last year. The tires being advertised now went up by 8.3% after falling a bit (0.6%) in 2020. Same with insurance on your car. It’s up 4.8% this year after dropping 5% a year ago.

When we get back to the house, I’ll bet my wife will be at her sewing machine working on some beautiful fabric; those prices fell this year by 10%. I didn’t buy a new TV this year while prices have been rising by nearly 13%, but I did buy one last year when prices fell by 11%.

Of course, 2020 was far from a “normal” year. With incredible demands on the health industries, and historically high injections of money from the federal government, prices had less than their usual significance. Thus, it is equally hard to interpret 2021 price changes when prescription drug prices fell by 1.6%, dental services prices rose 2.3%; hospital services up 3.2% and physicians’ services by 3.8%.

Inflation is dependent on what and when we buy in response to price changes. The danger is consumers and firms insisting on maintaining past habits. Then engaging in panic buying, a communicable economic disease, which does raise prices.
Morton J. Marcus is an economist formerly with the Kelley School of Business at Indiana University. His column appears in Indiana newspapers, and his views can be followed his podcast.

© 2022 Morton J. Marcus