The heyday for good sales on bacon is over. And I have proof—I do most of the shopping for our family. When the Federal Reserve Bank announces that inflation remains stubbornly below its two percent target while I’m begrudging paying even the sale price for the stuff, I don’t quite believe the central bank.
But the jobless rate keeps falling. Stocks are soaring. These and other indicators should signal a substantial recovery. But this perceived recovery doesn’t translate into the personal economies of many Americans.
Anecdotes about families living off of savings, with household incomes slashed in half abound. In my own experience it sure does seem like a dollar buys less each week that I shop.
Economist Mark Thornton says part of the reason for the Fed’s claims to low inflation is because of where the bank has injected the money—into banks, which in turn invest in corporate bonds, real estate and other investments. This explains the “record-setting year” on Wall Street.
But Economist John Williams has a clearer explanation as to why my bacon costs more every year or so, and to why the potato chip bags keep shrinking by half an ounce while the prices creep up a few cents at a time, or to why beef costs more. The explanation is the substitution method, an Alan Greenspan-era approach to manipulating inflation numbers. According to the substitution method the consumer would substitute ground beef for steak when steak became too expensive. Economists would substitute the steak for the cheaper ground beef in the basket of goods they use to calculate inflation, keeping the numbers artificially low.
This partly explains why middle class families are having to stretch a dollar further even though the Fed keeps telling us inflation is too low. And why even the sales on bacon are no good any more.