The Chart of the Century

The Chart of the Century

May 01, 2019

The Chart of the Century

LFG Marketing | May 2019

If a picture is worth a thousand words, how much can be said about the “chart of the century?” It depends on what you see.

Mark Perry is an economics and finance professor at the University of Michigan who constructed, and regularly updates, what some publications have dubbed “one of the most important charts about the economy this century”. Here’s what it looks like:

Perry uses Consumer Price Index data from the Bureau of Labor and Statistics to track the overall rate of inflation (as measured by the price changes of all goods and services included in the CPI), then breaks out 15 select categories to see how their prices have changed compared to the average. Since 1997, the cumulative rate of inflation is 57.4%, which is indicated by the black horizontal line on the chart.

Items that have increased more than the average rate are indicated by red lines, while the categories whose prices have either fallen or risen less than inflation are shown in blue. Relatively speaking, the items in blue have become more affordable, while those in red have become more expensive.

Cool Graphics. But…?

This chart has generated a lot of buzz, from academics and policymakers, to financial publications and social media (a February 2019 article mentioned that the chart was a topic of discussion by Federal Reserve Board members during a recent policy session). But while a lot of people may be talking about it, the political, economic, and investment conclusions drawn from it are all over the place. A sampling:

It illustrates the difference between local and global markets. A cell phone, TV, or toy can be manufactured anywhere, and sold anywhere. When a market is global, the lowest price often prevails; this competition usually results in more goods and services available at ever-lower costs.

Conversely, some things are uniquely local, such as where you live, eat and earn a living. Which could explain why the markets for housing, food and jobs, while competitive, more closely align with the national rate of inflation instead of global economic conditions.

It shows the impact of government involvement. Some commenters see the outsized price increases for education and healthcare as a result of government intervention. In healthcare, it’s regulatory oversight that imposes a bureaucratic layer and adds costs. For higher education, it’s subsidies (like loans, grants, and taxpayer funding) that artificially stimulate demand and drive up prices.

In categories where prices have declined the most compared to inflation, government involvement is either absent or behind the curve of innovation. For example, 5G, the next iteration of connectivity, might make political arguments about net neutrality irrelevant.

It oversimplifies and obscures the real issues. The chart implies that wages have kept pace with inflation. But a deeper dive shows uneven wage growth: a small group of Americans have seen their wages outpace inflation by significant percentages, while the vast majority have experienced wage stagnation or deflation. The average disguises a growing income inequality in America. This contention parallels another view of the chart…

It means we live in a Bread-and-Circuses Economy, where everyone can afford diversions, but most find it harder to pay for the essentials, especially quality-of-life-changing essentials, like education and health care. The more cynical observers view this as a deliberate strategy of the wealthy to appease the masses while pricing everyone else out of the most valuable goods and services.

What Can I Learn from This Chart?

To maximize your personal economy, the data is clear: You should write a college textbook and buy a TV. Joking aside, there are some insights for personal finance.

The chart emphasizes the economic value of maintaining a healthy lifestyle; every dollar not spent on healthcare effectively yields an inflation-beating return. Likewise, options to obtain a higher education at below-market prices (like online programs, community colleges, or employer-subsidized tuition) also deliver maximum economic value.

But going forward, categories which out-pace inflation will require a larger percentage of your personal economy to maintain. If you’re saving for college education, the only sure way to keep pace with price increases is to set aside more money – which means less to spend on leisure or invest in retirement.

The same goes for retirement planning. The more savings that must be kept in reserve for medical expenses, the less there is to generate monthly income.

Perhaps the biggest takeaway: the chart dramatically illustrates the cumulative impact of inflation; modest annual increases add up. While it is impossible to accurately project the rate of inflation, it is essential that consumers keep it in mind when planning for the future.

Lifetime Financial Growth, LLC is an Agency of The Guardian Life Insurance Company of America® (Guardian), New York, NY. Securities products and advisory services offered through Park Avenue Securities LLC (PAS), member FINRA, SIPC. OSJ: 244 Blvd of the Allies, Pittsburgh, PA 15222 (412) 391-6700. PAS is an indirect, wholly-owned subsidiary of Guardian. This firm is not an affiliate or subsidiary of PAS. 2019-78967 EXP 4/2021

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