That's An Ugly CPI Number. Thank Goodness It's Not Inflation.
(AP Photo/LM Otero, File)
That's An Ugly CPI Number. Thank Goodness It's Not Inflation.
(AP Photo/LM Otero, File)
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Each New Year’s Eve, Uber institutes “surge pricing.” The latter is no revelation. Uber recognizes that in order to meet the needs of its customers (demand), it must serve its drivers equally well (supply). As a consequence, Uber raises the prices it will charge its customers as a way of getting more of its drivers on the road. Customers are only too happy to pay up so that they can enjoy all the fun without having to get behind the wheel.

It all raises a basic question: are the price surges evidence of “inflation”? Before answering the previous question, it’s worth noting that Uber’s been quite a bit more expensive in the aftermath of the coronavirus lockdowns. Was this inflation? No to the first question, and no to the second. Obviously.

Stated simply, a rise in the price of one or many goods and services implies a fall in the price of others. This is simple arithmetic. The dollars we have to spend are not unlimited. Since they’re not, an extra $100 spent for transportation on New Year’s Eve signals $100 less to spend on drinks and dinner that night, breakfast in the middle of the night, and all manner of hangover cures the following day.

It cannot be stressed enough that in any economy, prices rise and fall all the time. Thank goodness they do. It’s through price signals that a market economy organizes itself. Rising prices are a summons for more production, while falling ones are often a signal of flagging interest in a good or service. The main thing is that rising prices are by their very name, transitory. When a market good is dear versus another that sits unclaimed, both are precious signals that tell producers what is and isn’t needed. These signals are not inflationary or deflationary, however. They’re just markets at work.

All of which is hopefully a good jumping off point to the discussion of inflation that dominates the news right now. In last Saturday’s Wall Street Journal, Gwynn Guilford reported that “U.S. inflation reached a nearly four-decade high in November, as strong consumer demand collided with pandemic-related supply constraints.” The Consumer Price Index (CPI) meant to measure what consumers pay for goods and services soared 6.8 percent based on these supply constraints. It’s an ugly number for sure, but it’s not inflation.

Inflation is a decline in the unit of account. In our case, a decline in the dollar. The problem there is that there hasn’t been any notable fall in the dollar versus currencies or commodities of late.

Inflation is yet again a fall in the unit; usually versus a commodity like gold known for being “immune” to supply/demand factors. Ok, so gold is $1788 as of this writing. It’s well up versus its 2001 price of $260/ounce, but not notably up over recent years. The dollar fell much more substantially in the 2000s versus 2020-21. One would think the neo-inflation hawks would have made noise about inflation in the 2000s based on this truth, but they were rather quiet. It’s something to think about.

Tacking to Kevin Warsh, in an opinion piece for the Wall Street Journal on Monday the former Fed vice chairman lamented inflation allegedly signaled by the CPI increase. In his words, “During the past several quarters, U.S. inflation has surged – now running about triple the Federal Reserve’s 2% target.” Except that these increases once again have little to do with actual inflation.

Think about it. Before March of 2020, market prices globally were a consequence of remarkable cooperation among billions of workers around the world. Then the lockdowns happened such that major swaths of the global economy were shuttered. It’s sad that what’s about to be said rates stress, but the low prices for goods and services that people the world over enjoyed pre-lockdown were not going to remain low post. This is a statement of the obvious. Trillions of commercial relationships built up over decades by billions of individuals were to varying degrees vitiated by government force. Based on that, what reasonable person would actually believe prices would remain where they were in the months and years after?

About price hikes born of supply-chain-wrecking lockdowns, Warsh oddly dismisses them as the true cause of rising prices; laughably claiming that “Consumer prices are higher because prices are rising at the points of production, assembly and transportation.” Does the former Fed Board member really believe that production, assembly and transportation haven’t similarly suffered the inevitable cost pressures that were a consequence of political force, and that Warsh sadly supported in opinion pieces for the Journal amid the darkest days of the lockdowns?

You quite simply cannot suffocate economic activity for weeks, months and more without major downstream consequences. It all speaks to the astounding arrogance of economic types long on theory, but hopelessly short on basic real-world understanding. This mismatch has them looking at higher prices that are a clear consequence of supply suffocation, only for them to oddly blame the Fed. Did central banks institute the lockdowns? The arrogance of the economic class is once again astounding. Only an economics Ph.D. could believe something as complicated as global cooperation among producers is actually simple. The reality is that “inflation” misses the point. Something as truly dangerous as inflation (as in currency devaluation) is now being politicized like everything else. 

Back to reality, a sick form of central planning was imposed on producers around the world in March of 2020. Actual producers the world over are presently picking up the pieces, and reviving relationships wrecked by clueless politicians who were being led around by “experts.” This will take time to fix. As it’s being fixed, goods and services will be more expensive. Just don’t naively call the expensive consequences of command-and-control inflation. 

John Tamny is editor of RealClearMarkets, Vice President at FreedomWorks, and a senior economic adviser to Applied Finance Advisors ( His new book is titled When Politicians Panicked: The New Coronavirus, Expert Opinion, and a Tragic Lapse of Reason. Other books by Tamny include They're Both Wrong: A Policy Guide for America's Frustrated Independent Thinkers, The End of Work, about the exciting growth of jobs more and more of us love, Who Needs the Fed? and Popular Economics. He can be reached at  

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