John Lanchester on the Consumer Price Index and Economic Perception

The Consumer Price Index (CPI)

• 💡 The CPI is an attempt to sum up the change in the price of everything in an economy, from eggs to yoga mats, across a vast country like the United States.
• 🎯 It's a vital economic number that influences Social Security, pensions, and even divorce settlements, requiring immense intellectual and practical work to produce.
• 🧩 The concept of a single CPI is inherently complex, as it averages diverse items like rent in a trailer park versus a Manhattan duplex, and its basket of goods changes over time.
• ⚠️ A key challenge is that the CPI may not accurately reflect individual subjective experiences of inflation due to personal consumption habits and the substitution effect.

The Misery Index and Political Impact

• 📊 The Misery Index, calculated by adding annual inflation to unemployment, was historically a reliable indicator of public sentiment.
• 📉 An incumbent losing office if the Misery Index was in double figures became a rule in modern American politics, with few exceptions.
• ⚠️ Despite historically good economic numbers, the Biden administration struggled to gain political traction, suggesting a disconnect between data and public perception.

The Vibe Session: Data vs. Subjective Experience

• ⚡ There's a significant disconnect between the economic data and how people feel life is going, a phenomenon described as a "vibe session."
• 🧠 Many people distrust the numbers, viewing them as rigged or fake, contributing to a sense of doom and gloom.
• 🍞 Food inflation is a particularly potent driver of this perception, as it's noticed multiple times daily, unlike less frequent expenses like car insurance or durable goods.
• 🗣️ The subjective sense of what life is like, and the stories people choose to believe, are increasingly shaping political discourse.

Inflation and Political Culture

• 💥 High inflation has historically caused societal derangement, a lesson seemingly forgotten in recent decades.
• 🏛️ Even Republican presidents like Nixon implemented price controls in attempts to manage inflation, highlighting its profound political impact.
• 🌍 Incumbents globally have lost elections, with inflation often cited as the primary shared cause, demonstrating its power to destabilize political culture.

Improving Economic Communication

• 🔍 Politicians and economists should better communicate the distinction between core and non-core inflation, particularly the impact of food and fuel prices.
• 💬 While the technical production of CPI might have limitations, the framing and storytelling around the numbers are crucial for public understanding.
• 📌 It's essential to differentiate between the essential function of government metrics and the personal, everyday experience of individuals.