April 30, 2012
The Inflation Threat Is a Bogeyman
The conspiracy theory that inflation is being wildly under-reported doesn't withstand more than 30 seconds of scrutiny. So why the persistent belief that we're reliving the stagflationary nightmare of the 1970s when the deflationary nightmare of the 1930s is much more relevant?
I have stagflationary in my name and even I don't see stagflation. Of all people, you'd think I would be the most sympathetic to the conspiracy theory. I do see pathetic real growth, pathetic real yields, and pathetic job creation but I don't see runaway inflation. I track every penny I spend. It's just not there.
As a keeper of receipts, I offer this anecdotal data point.
I refer you to the sticker that was mounted to my Camry 4-Door XLE Sedan V6. In order to compare apples to apples I will remove all of the optional equipment.
Here's the 1996 model.
Camry 4-Door XLE Sedan 3.0 Liter V6, MSRP: $25,038.00
Here's the 2012 model.
Camry 4-Door XLE Sedan 3.5-Liter V6, MSRP: $29,845.00
Let's ignore quality improvements (note the larger engine on the new model) for a moment and just talk about the 19.2% price increase spread out over 16 full years.
That's an average price increase of 1.1% per year on a large purchase that most Americans very much seem to cherish.
Now let's talk about what the price would be if inflation had really been 10% per year.
$25,038 x 1.1^16 = $115,048
So here's my question for the CPI conspiracy theorists.
How many Camrys would Toyota sell this year in America if they raised the price to $115,048?
Now let's see what the government says new car prices have done.
In April 1996 (the month I bought my car), the new car index was 140.8. As of March 2012, it stands at 143.702. That's an average annual increase of 0.1% per year. At best, the government is under-reporting new car inflation by 1% (the difference between the 1.1% I see and the 0.1% the government sees). That hardly gets you to 10% inflation though.
Would anyone really dispute that new cars of today haven't gotten better by the 1% per year the government seems to be claiming? Seriously?
Let's go back to that engine discrepancy. My car has a 3.0 liter V6 185 horsepower engine. The new car has a 3.5 liter V6 268 horsepower engine. For those keeping track at home, that's a 45% increase in horsepower. Amazing. The government claims that I should have to pay more for a more powerful engine. Why would I disagree? I paid extra to get the V6. It was worth it to me. That's just for starters. I don't think it is hard to imagine other improvements that have been made in the last 16 years.
2012 Toyota Camry Performance
"The four is strong in this car, so there's no reason for the V-6 take-rate to go up." -- Motor Trend
The 2012 XLE V4 has 178 horsepower, which is just 7 horsepower shy of my 1996 XLE V6. It gets 25% better gas mileage in the city than mine too. Further, its MSRP ($24,725) is lower than what I paid 16 years ago. So you tell me where the inflation is in new car prices and we'll both know.
It isn't inflation if you get a 20% better car for 20% more money. In fact, we do that every time we purchase a car. "I like this one but that one is 20% better. Should I pay 20% more for it?" It's not always an easy decision.
It stinks if you cannot afford the new car with added features and improvements, but that's not an inflation problem. That's a wage problem. Let's stick to what the problem really is. For a variety of reasons, wages are stagnating.
It's not stagflation. It's stagployment.
In my opinion, we're going to be stuck with it for a very, very long time. Sigh.