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Inflation is already here — for the stuff you actually want to buy
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If it feels like the price of everything you buy has been soaring, that's because it has — even as central bankers everywhere worry about the danger of deflation.
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The gap between everyday experience and the yearly inflation rate of 1.3% in August is massive. The price of the stuff we're buying is rising much faster, while the stuff we're no longer buying has been falling, but still counts for the figures.
Economists will be relieved that the laws of supply and demand are still working, at a time when so much in the discipline is in doubt. But for investors it hangs a veil over the outlook for perhaps the single most important issue for the markets: whether we're headed for a future of inflation, deflation or a continuation of the past decade's lackluster price rises.
Start with recent supply and demand. The cost of food at home, where so many of us have been spending our time, was up 4.6% in August compared with a year earlier, the biggest rise in almost a decade. In deserted workplace and school cafeterias, food is 3% cheaper.
Food prices move around a lot, but the same pattern shows for many things sensitive to us sitting at home on Zoom. Few home workers need a new suit or dress (down 17%), makeup (down 3%), hotel room (down 13%) or air ticket (down 23%).