More Proof of Inflation: Automobiles

More discussions about inflation? Yes, of course.. This monetary phenomenon impacts everything. It’s surreptitious nature traverses through the marketplace impacting individuals’ ability to purchase goods and services in the marketplace. I have found another example of inflation, and it’s influence on the purchasing power of goods. This example is in the auto sales market. Although I have made reference to this market before, mainly though how subprime lending usage has risen over the last six years, I haven’t discussed anything specific in how inflation impacts goods…until now. I am not going to take credit for the technical analysis presented(see the links below), I’m just going to continue to make my case regarding our inflation slowly impacts and erodes savings.

A Revisit of Inflation

Inflation is a monetary phenomenon. As more units of currency are printed, expanded via credit, and other means, the monetary base begin to decline in value. Mainstream economists will use indices like the Consumer Price Index to state price level to validate the appearance of inflation. The CPI is a useful tool, but it does not really capture the impact of inflation. With inflation, it is possible for the price of goods stay relatively the same(albeit the forces of supply and demand can play a role in price increases). It appears prices are rising, but that isn’t the case. The real key to understand this phenomenon is this: It takes more monetary units to buy the same set of goods.

But, But wages?

Of course, wages have risen over time. The issue is, as it relates to inflation, is two fold: (1) Wages are not increased uniformly, and (2) Wage increases have not kept pace with inflation. First of all, the labor market is a heterogeneous mix of individuals with a variety of skills, talents, and abilities. Those talents will have a relative amount of demand in the marketplace, based upon many factors, mainly due to scarcity. Since wages are not homogeneous, therefore, other laborers will not see the sharp rise in their wages, as others. (Contrast someone who is a fast food worker to a person working in information technology.) Next, wages have not kept pace with the inflationary impact of goods in the marketplace. There are laborers that can obtain items that have kept pace with inflation, yet many, mainly income earners who make $33,000/year and less, can not keep pace. Many are leaning toward the use of more credit, as the increased use of sub prime lending is proof of this.

Automobiles

With autos, an argument is being made that the CPI, doesn’t accurately demonstrate the inflationary impact on this industry. A key excerpt from an article produced by Wolf Street(link to the article is provided below):

“While wages have grown in nominal terms, “real” wages adjusted for CPI have been flat for men since the 1970s, and have grown only for women, but from a much lower base. In terms of our time frame here since 1990, “real” household incomes have only grown 22% since 1990, but the cost of a Camry LE has soared 70%.

This is the difference between “inflation” and “cost of living.” Things get better but they get more expensive. But the problem in the logic is that you cannot buy a new 1990 Camry anymore, even if you don’t want all the improvements, and you just want a cheaper car. In other words, wages rose with inflation, but the increase was not sufficient to pay for the quality improvements of everything around us, which makes a big part of the population feel increasingly impoverished.”

This finding isn’t shocking. Inflation strikes again.

Excursus:

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