Inflation Is Higher Than the Numbers Say

The price that Costco charges for Cheerios has not changed much, but during the pandemic my family is visiting Costco less and relying on Instacart instead, which charges a premium for delivery.

The Cheerios are identical — Instacart even picks them up from Costco! — but Instacart charges a premium over Costco’s low prices. While my weekly box of Cheerios has become more expensive, the government statistics infer that if neither the price of Cheerios at Costco nor the price of Cheerios from Instacart has changed, there must be no Cheerios-related inflation. My wallet disagrees.

In general, the risks associated with in-person shopping have led many people to shop around less, or to switch to more expensive online or delivery options, and they’re often also adding a healthy tip. As a result, the cost of living for many families has risen in ways that the Consumer Price Index fails to capture. (By contrast, in normal times people tend to flock to cheaper outlets, so this “outlet bias” usually leads official statistics to understate inflation.)

Typically, many businesses add new features, or improve the quality of their products. Government statisticians try to make adjustments for how the changing quality of goods affects the price. It’s hard to account for every change, so these unmeasured quality improvements often lead the statistical authorities to overstate how fast the cost of living is rising.

But the pandemic has forced many businesses to switch to producing lower-quality products. That restaurant meal you might have enjoyed with table service and mood lighting is now offered in a foam container to eat at your kitchen counter. Your therapist might be available over Zoom, but is it really an adequate substitute? And few colleges are offering discounts this year, even as they’re moving to largely online instruction, which my students tell me is a vastly inferior product.

Even as the price tags on these products haven’t changed much, their quality has declined, which is a hidden form of price increase ignored by the official inflation numbers.

We’re living in a time of shortages. Bikes, dumbbells, bread makers (or even just yeast), camping equipment or Nintendos are hard to find at any price.

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