October 28, 2021

There Is Shadow Inflation Taking Place All Around Us

People trying to buy appliances and other retail goods are waiting longer. According to J.D. Power, even at the highest-rated retailers, only 57 percent of customers were able to get customer service within five minutes this year, down from 68 percent in 2018.

Government statistics agencies try to take changes in product quality into account when calculating inflation. But that process, known as hedonic adjustment, most commonly applies to physical objects. It is relatively straightforward to estimate the value of, say, the quality of stitching on a shirt or the value of a backup camera on a new car. There is a whole world of inflation alarmists who argue that this process leads to the understating of true inflation.

But quality changes involving customer service can be ambiguous and hard to measure. The Bureau of Labor Statistics, which generates the Consumer Price Index, does not incorporate quality adjustment on 237 out of 273 components that go into the index, including the vast majority of services.

Alan Cole, a former staffer for Congress’s Joint Economic Committee who writes the newsletter Full Stack Economics, noticed these sorts of annoyances during a long drive through the Northeast this summer — fast food that took an awfully long time to come, poorly stocked condiment stations, soda machines that were out of stock. The dynamic became even more clear to him when he stayed in a hotel that had a large area designated for offering hot breakfast to guests — it was mostly empty, with a few sad mini-boxes of cereal.

For years, he had argued that official inflation measures actually overstated inflation, because there were many below-the-radar product improvements not captured by the data, like software that was becoming less buggy. Now, he concluded, the reverse seemed to be happening.

Article source: https://www.nytimes.com/2021/10/10/upshot/shadow-inflation-analysis.html

Speak Your Mind