Chart of the day…. or century?

Excerpt from article published by American Enterprise Institute in December 2020.

"Based on Wednesday’s BLS report on CPI price data through December 2020, I’ve updated the chart above with price changes through the end of last year. During the most recent 21-year period from January 2000 to December 2020, the CPI for All Items increased by 54.6% and the chart displays the relative price increases over that time period for 14 selected consumer goods and services, and for average hourly wages. Seven of those goods and services have increased more than average inflation of 54.6%, led by huge increases in hospital services (+203%), college tuition (+170%), and college textbooks (+151%), followed by increases in medical care services (+117%), child care (+106%), housing (+65%) and food and beverages (62%). Average wages have also increased more than average inflation since January 2000 — by 82.5% — indicating that hourly wages have increased 28% more over the last two decades that the average increase in consumer prices.

The other seven price series have been flat or have declined since January 2000, led by TVs (-97%), toys (-73%), computer software (-70%), and cell phone service (-40%). The CPI series for new cars, household furnishings (furniture, appliances, window coverings, lamps, dishes, etc.) and clothing have remained relatively flat for the last 21 years while average consumer prices increased by 55% and wages by 82.5%.

Various observations that have been made about the huge divergence in price patterns over the last several decades displayed in the chart include:

a. The greater (lower) the degree of government involvement in the provision of a good or service the greater (lower) the price increases (decreases) over time, e.g., hospital and medical costs, college tuition, childcare with both large degrees of government funding/regulation and large price increases vs. software, electronics, toys, cars and clothing with both relatively less government funding/regulation and falling prices.

b. Prices for manufactured goods (cars, clothing, appliances, furniture, electronic goods, toys) have experienced large price declines over time relative to overall inflation, wages, and prices for services (education, medical care, and childcare).

c. The greater the degree of international competition for tradeable goods, the greater the decline in prices over time, e.g., toys, clothing, TVs, appliances, furniture, footwear, etc.

What’s New?

d. The price series that has shown the greatest change recently is the CPI for Educational Books (mostly college textbooks). Textbook prices rose an average of nearly 6% annually between January 2000 and December 2016, nearly three times average annual inflation during that period of just over 2%. But starting in early 2017, the CPI for Educational Books flattened for the first time ever and has now been trending downward. On an average annual basis, the CPI for Educational Books declined in both 2019 (-1.5%) and 2020 (-1.1%) following small increases in 2017 (1.6%) and 2018 (1.0%). Those small positive increases followed by two consecutive annual decreases have been an unprecedented departure from a half-century of increases in educational book prices that averaged 6.3% between 1968 and 2016."