So whaddya wanna know about inflation?
Feb 23, 2022
Episode 606

So whaddya wanna know about inflation?

HTML EMBED:
COPY
Turns out, you have questions.

It’s Whaddya Wanna Know Wednesday, and Kai’s flying solo today, focusing on your inflation questions. Like, which grocery store items are used to calculate inflation numbers? Could lifting the tariffs on China lower prices at the cash register? Is what we’re seeing really inflation or plain old corporate greed?

Have a question you want answered next week? Email or send a voice memo to makemesmart@marketplace.org. Or leave us a voice message. We’re at 508-827-6278 (508-U-B-SMART)!

Sign up for the Make Me Smart newsletter (or any other Marketplace newsletter) by Feb. 28 and be entered to win a signed Vintage Kai T-shirt.

Here’s everything we talked about on the show today:

Make Me Smart February 23, 2022 transcript

Note: Marketplace podcasts are meant to be heard, with emphasis, tone and audio elements a transcript can’t capture. Transcripts are generated using a combination of automated software and human transcribers, and may contain errors. Please check the corresponding audio before quoting it.

Kai Ryssdal: Oh, man, new guy engineer’s not even like the briefest hints of ianything. Holy cow. Jayk Cherry, welcome to Marketplace anyway. Hey, everybody. I’m Kai Ryssdal. Welcome back to Make Me Smart making today make sense is what we do. Here it is, of course, Whaddya Want to Know Wednesday? And listen, I got some bad news. Just me today. Just me. No, Kimberly, no, Marielle. No, Sam Fields, just me. But that’s on purpose. Because props to Bridget Bodnar, producer extraordinaire. She said, “Listen, what if we just do an inflation what do you want to know Wednesday? And you just answer questions.” So that’s what I’m going to do. Your questions about inflation, some of them quick, some of them slightly longer. We’ll mix it up a little bit. We’ll do 15 minutes. And then we’ll get going. Not only are we doing something a little different with the format of the show today, we’re doing something a little different, I think ever with the show today. And that’s having a live call-in listener actually come on the phone and ask me a question. So person on the phone. Who are you?

Josh: Hi, I’m Josh from Arlington.

Kai Ryssdal: Josh from Arlington. Arlington, where? Arlington, Texas? Arlington, Virginia, which one?

Josh: Arlington, Virginia.

Kai Ryssdal: Okay. All right. I know it well lived there for a couple of three years. Alright. What do you want to know, Josh?

Josh: So I was grocery shopping. And one of the items that I wanted in the generic brand, which let’s say was $2 wasn’t available. Yeah. So I bought the fancier brand name item for $2.75. When we talk about inflation and the price of groceries going up, is it factoring in the cost that people are having to choose more expensive items because the cheaper one might not be available?

Kai Ryssdal: That is such a good question, what you’re talking about here is something called the substitution effect, which we’ll get to in a second. But just as a primmer, because we’re doing a whole thing on inflation. Let’s remember what inflation is, right? Inflation is a percentage change in the broad overall price level in the economy from month to month, year to year, decade to decade, take your pick, right and right now we’re looking back at the 70s and early 80s, like 40 decades ago, or 40 years ago, because that’s the last time we had inflation like this, okay. So that level is mentioned is measured for most of us at In by something called the consumer price index, the CPI right. And that is what is called a basket of goods. Economists and government statisticians and all the people who pay really close attention to this got together and said, “Let’s come up with a basket of things, a metaphorical basket of things. That will be really good example of what consumers are buying.” Now, that basket of things they are actually shopped for, right people actually go to stores and look and see what the prices of, I’m making this up right, Whole Farm Fresh, Grade A large eggs is right, but they don’t actually buy and that is the challenge. Okay, because the substitution effect we’re talking about Josh, doesn’t come into play in the CPI. But it does come in in another measurement, and we got Natalia Smirnova. She’s an economics professor at University of Connecticut to explain how that gets measured.

Natalia Smirnova: So the actual decision of substituting the expensive item for the cheaper one is captured in the Personal Consumption Expenditures Index. This index is calculated by surveying selected households. Unfortunately, the PC index is not the basis for the common inflation calculation.

Kai Ryssdal: So the PCE statisticians and people who do their survey actually call households and say, What did you buy, and that is where the substitution effect gets captured. Right? If you go and instead of buying the $2 item, you have to buy the 275 item. That’s where it’s going to get captured. The catch, of course, is that as Professor Smirnova said, that’s not the common measurement, PCE, Personal Consumption Expenditure is is not the common measurement. It’s the CPI, but the PCE, Personal Consumption Expenditure is what Jay Powell and the gang at the Federal Reserve look at when they are trying to figure it out. So the people who are actually setting interest rates in this economy, the guardians of interest rates, if I could paraphrase or directly quote my colleague Dave Rubin, catcher from the morning show, right? They are capturing the substitution effects so the policymakers are paying attention to it. Does that make sense?

Josh: Yeah, completely. Thank you.

Kai Ryssdal: Alright, there you go. So that’s one satisfied customer here on the Marketplace. First ever call-in. What do you want to know Wednesday, Josh, thanks for your time. I really appreciate it.

Josh:  Hey, thank you, Kai. Have a good one.

Kai Ryssdal: All right. Take care. You too. Okay, so that was a long answer. We’re gonna do a couple of quick ones, now. Apparently, the deal Bridget tells me because as we know, Bridget is in charge, I get 30 seconds to answer each question. Not all the questions, each question, and then we got to move on Jayk Cherry, who likes to start podcast without telling anybody he’s gonna start ’em, is in charge of keeping time. Jayk you ready?

Jayk Cherry: I am ready to go. Let’s go.

Kai Ryssdal: Alright, hang on. Hang on. I’m going to start a clock here. Just to keep myself honest. Okay, reset. 30 seconds. Okay, first question go.

Will: Hey, guys, this is Will in Greenville, South Carolina. If the White House lifted all tariffs on goods coming into the United States, specifically China and Europe, would this help reduce inflation?

Kai Ryssdal: Oh, good question. So let’s set the stage here. Right? There are tariffs, Trump-era tariffs on about 350-ish billion dollars worth of imports from China annually, right? Those tariffs range from 10 to 25%. So conceivably, if we got rid of all those tariffs, those goods would become cheaper. Would it make a dent in overall inflation? My – oh, that’s that’s that’s the –I got 10 seconds. So the answer is maybe, probably not enough to make a difference. Boom, there you go. 30 seconds. Next. Ha.

Mary: Hi, my name is Mary. I’m from San Diego, California. I know during Obama’s first term, we dealt with a deflationary period. But is that deflation helping us today? Or will a period of deflation in five years offset inflation we’re having today?

Kai Ryssdal: Well, the short answer is maybe, right. But let’s think about what deflation is. Because that’s that’s not really a good thing. Oh, sorry. I gotta start my clock. 30 seconds. Well, I’m just gonna wait for the music. Deflation are falling prices across the board over time, and you don’t want deflation. Because let’s say you’re shopping for a television, and your television today is $200. But you know that in a month, it’s going to be 150. Well, look, you’re gonna wait and, aw man. And  deflation doesn’t really help you up because that slows economic activity, right? If people aren’t buying TVs now and they’re waiting, and they know that the next month, I’m gonna go over here, they know that, Jayk, you’re killing me. They know that in the next month, it’s going to be not 150 but 100 bucks, they’re just gonna wait. Right? And they’re gonna wait for those prices to hit bottom. So deflation is not necessarily good. Also, over time, it all kinds of even evens out is the short answer, Mary. So number one, I’m sorry, I went long in the question. And number two, I’m sorry that deflation isn’t gonna help us out. Oh, man. 30 seconds, Bridget, it’s too short. Next time we do this I gotta have 45. Next, Jayk, let’s hit it.

Nick:  Hello, this is Nick in Illinois. My question is, are there winners for inflation?

Kai Ryssdal: Oh, yeah, sure there are. So look, when inflation happens, debts become less onerous over time, right? The real value of the debt goes down over time. So who owns a fixed rate debt? Well, the United States does for one thing, right? People with fixed rate mortgages are winners. Student loans also. But there are losers, right people on fixed incomes who aren’t seeing the benefits of rising wages, people with credit card debt aren’t necessarily seeing that. So winners and losers, boom, I’m going to call that one a win. Ha, next.

Nathan: Hello, Make Me Smart. This is Nathan from Sheffield, Iowa, are wages and compensations rising faster than inflation, thereby increasing purchasing power overall? Or will we just settle out at a new normal level of wages and prices with the gap being the same?

Kai Ryssdal:  Well, you look, I don’t know about the gap. And we are going to settle out at some point on a new level. But here’s the deal. Most of the wage gains in this economy have come in the lower ends of the income spectrum. So folks who make less generally speaking, have done better in terms of inflation. And their wages. The catch, of course, is that inflation has eaten away at those wages. And so most people in this economy, who are at that end of the spectrum took a net pay cut of two and a half ish percent last year. So the short answer is no. Boom. Okay, all right. My rundown here. Thank you very much, Bridget Bodnar and the producers of this podcast say tape 0223 MMS surprise, so hit it.

Marissa Cabrera: This is Marissa, Make Me Smart producer. What is something you thought you knew about inflation you later found out you were wrong about?

Kai Ryssdal: What is something I thought I knew about inflation but I later found out I was wrong about okay, here’s what I thought I knew two things. Number one, and I look I said this on the podcast and I’ve said it I think on on marketplace as well. I thought the It was going to be transitory. I was I was firmly with Jay Powell in the in the in the camp transitory and clearly I was wrong about that. But number two, I thought the Federal Reserve was was more scarred by the 70s and 80s than they are right? That that the Volcker era hyperinflation really flummoxed him. And and they kind of weren’t, which surprised me. So there you go. Huh. All right. Good deal. One last question on our way out. This is a good one. It comes from a lot of people. Here you go.

Jen: This is Jen calling from North Conway, New Hampshire. How come we keep referring to the current rise in consumer prices as an inflation problem? What about the fact that many companies and corporations are experiencing record profits? Is that inflation? Or is that just really corporate greed?

Kai Ryssdal: So look, that’s a really good question. And I totally get it. So there are some, most of them on the left, who say it is corporate greed that is driving this inflation. And that’s outrageous, right. Elizabeth Warren, for one Senator Elizabeth Warren from Massachusetts, basically argues that corporations are raising prices because of their can, because there has been so much corporate consolidation in this economy in this last – No, this cannot possibly be a 30 second answer. Jayk Cherrk get out of here. I am disregarding that bonk when it comes. Just wait. Just wait. Just wait. Just wait. Okay, no, I am not restrained by 30 seconds on this answer. I’m going to take the remaining 55 minutes of this podcast anyway. So here’s the deal, Elizabeth Warren. And some others have said it’s all about corporate greed because corporations have more power because of corporate consolidation. Right? If you remember from two or three Tuesday’s ago, Kimberly and I asked Betsey Stevenson, who is a professor of economics at the University of Michigan what she thought about the the corporate consolidation and corporations raising prices, because they can and that’s driving inflation. And she said, “eh not so much that it’s really the the imbalance between supply and demand.” And if you look at industries that experienced the biggest high price increases, look at cars, look at trucks, right, also energy, they correlate to industries, where there were serious supply chains interruptions, we got Wendy Adelberg on the phone. She’s at the Hamilton Project at Brookings we had on Marketplace many a time. And she says “consumers look in the mirror.”

Wendy Edelberg: The impetus behind these price increases has been the surge in consumer demand. Firms did not wake up one day and say, “Wait, we know a whole new way to make profits. Let’s raise prices.”

Kai Ryssdal: I like Wendy Edelberg, she’s super smart. We also got Professor Stevenson from Michigan back on the phone. And here’s what she said.

Betsey Stevenson: I think what we are seeing is, as demand picks up, we’re seeing some of the maybe some of the limitations that come from having an economy with so much market concentration in it. I don’t think we can say that that is the cause of inflation. But I do think we want to take a look at that for the long run health of our economy.

Kai Ryssdal:  So look, are corporate profits, which have increased by a marginal percentage over the course of the pandemic, part of the reason the prices are higher, yes, of course. But this is a multifaceted beast, right? And it consists of consumer demand, choked up supply chains, right all the things that if you’ve been listened to Marketplace in this podcast, you know about. So sure, corporate profits and corporate prices are one part of it, but there’s lots and lots and lots of part of this. Parts of this. So that’s my sense. And with that, I believe I’m calling an official end to the first ever call-in speed round question of what do you want to know Wednesday? We are done. Hope you like it. Let us know if it was terrible. If you want me to shut up tell us makemesmart@marketplace.org. Or our phone number of course 508-UB-SMART. I’m back tomorrow cuz this is my job. Marielle Segarra’s gonna be here as well Hollowed Out Shell Thursday. Send us your questions for next week or comments on pretty much anything year. Once again makemesmart@marketplace.org voicemails come to us at 508-UB-SMART. Alright, we’re done. We are done Make Me Smart is produced by Marissa Cabrera and Marque Greene. Engineer today by Jayk Cherry our intern’s Tiffany Bui. Ben Tolliday Daniel Ramirez as all y’all know, because we say it every day, composed our theme music the senior producer and the brains and the brains behind this operation specifically today’s show of which it is her brainchild is Bridget Bodnar. There you go. Boom.

None of us is as smart as all of us.

No matter how bananapants your day is, “Make Me Smart” is here to help you through it all— 5 days a week.

It’s never just a one-way conversation. Your questions, reactions, and donations are a vital part of the show. And we’re grateful for every single one.

Donate any amount to become a Marketplace Investor and help make us smarter (and make us smile!) every day.

The team

Marissa Cabrera Producer
Bridget Bodnar Senior producer
Tony Wagner Digital Producer
Marque Greene Associate Producer