There are several indexes which supposedly track inflation. The one the Federal Reserve allegedly follows in making its decisions on interest rates is published by the Department of Commerce’s Bureau of Economic Analysis unit and is related to consumer spending. It is the “deflator” used in regard to that spending. In other words, how much of the change in consumer spending was due to price increases (or very rarely, price decreases) and how much was actually purchasing more of stuff and services. Last week the BEA reported that consumer spending rose by six-tenths of a percent in August compared to July. In terms of dollars spent, the biggest increases were in transportation, food and hotel services, and recreation.
The price index was up .3% in August month over month, and 2.7% year over year. Importantly, personal income rose at a slightly higher rate than inflation, so that there was growth in real personal income. That is important in terms of consumer perceptions. But within that personal income growth there is extensive variation. The higher income cohorts are tending to see more personal income rises. A good sign is that private sector wages appear to be rising faster than government sector ones, a reversal of a bad trend. I think the public is unaware of how excessively government employees are compensated, often for little or no useful work. A bad sign, however, is continued growth in government transfers, i.e. payments, as a component of personal income. (BEA Report)
