Why does inflation feels so much worse than 8%?

Since Biden was inaugurated consumer prices have increased by over 13% … more in key consumer categories

Following the stats communications principle of “bite sizing” large numbers into smaller (less alarming) ones, Biden likes to focus on month to month price changes.

Along the same vein, the BLS and media norm is to focus on year-over-year percentage increases.

For example, the latest CPI increase is reported at 8.2%

But, when we go to a store or a gas station, prices seem so much worse.

Why is that?

Simple answer: the headlines aren’t reporting the most relevant numbers — price levels and their change from a meaningful starting point.

A more complicated statistical answer has to do with the “miracle of compounding” … which in the case of prices, is more like the “disastrous effect of compounding”

Case in point: this week, the BLS reported that, in Sept. 2022, the CPI increased 8.2% from Sept. 2021.

Let’s set a different comparative point — namely, January 2021 — when Trump turned over the WH keys to Biden…

in January 2021, the CPI was 261.6 … in Sept. 2022, it was 296.8 … that’s an increase of 13.1% …  which is 1.6 times 8.1% (i.e. 60% higher)

That’s what people are feeling … not the year ago comparison … since the year ago number already has some jaw-dropping inflation baked in.

In stats-speak, this is the “lapping principle” 

And, as the chart below shows, the price tag pain is worse for the most relevant home budget items.

For example, since Biden’s inauguration…

  • Food at Home is up 17.7%
  • Gas is up 58.6%
  • Electricity is up 23.3%
  • Natural gas is up 51.8%
  • Used cars are up 36.2%
  • Housing costs are up almost 10%
  • Air fares are up 41.8%

click table  to enlarge

The red  numbers above show what consumers are feeling … not “just” the 8.2%.


Chart notes:

  1. Columns (a) and (b) are from the published BLS reports for January 2021 and September 2022
  2. Column (c) “Point to Point % Increase” is the % increase from Jan.2021 to Sept. 2022
  3. Column (d) “Compound Annual Rate” is the   is the annualized percentage increase from Jan. 2021 to Sept. 2022
  4. Column (e) is the percentage change from Sept. 2021 to Sept. 2022

Again, IMHO, column (c) “Point to Point % Increase” from Jan.2021 to Sept. 2022 are the numbers that we should all be focusing on.

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