The Consumer Price Index (CPI) was crafted in 1917 by the Wilson administration to garner support for WW1 designed to reflect what consumers spent to live in much simpler times. It was a large component into the early days of savings bonds, many bank loans were tied to it and it is still the gauge to change many entitlement programs. However, the original price gauge was the Wholesale Price Index (WPI) which was created in 1902 until 1978. In 1989, the Producer Price Index (PPI) essentially took its place under the Clinton Administration which was the next variation that tried to encompass input costs.
The most significant statement in Mr. Powell’s commentary is that insurance is becoming a material cost in the economy and is not reflected in either government inflation calculation. This is a profound admission as it is very unclear and hard to conceive how monetary policy could affect insurance costs: health and property casualty. Anyone who recently renewed health plans knows that paychecks are being bled. The very intricate spread sheets to buy residential or commercial real estate are not exploding because no one could see the rise in premiums.
Although somewhat anecdotal, anyone notice how many medial questions that are communicated through emails may now have a $25 fee? Is the person who thought surge pricing at Wendy’s was a good idea still employed? Anyone else getting confused about how much a meal costs when a service fee is added, tip is added and now you are charged the credit card fee? What is the real difference between going to a restaurant versus a meal magically appearing at your doorstep?
Over the years, there have been various changes to how businesses work to control prices. Much of that was “outsourcing” to other countries with a lower wage base or taking advantage of the relative strength of the currency. But it seems now the trend to maximize profit it to have the consumer do more of the work. When will the CPI include the cost of my time when I spend an hour on the phone dealing with an error done by a health insurance company or the gross cost of a meal?