How Inflation Can Go Up And Down At The Same Time

What if I told you that in one year you would be paying much more for goods and services than today but the government would be touting a reduction in inflation by over 50%? It’s true. How? Well, you know the old saying, “Lies, damned lies, and statistics.” Let’s dive in.

The US Bureau of Labor Statistics (there’s your first clue) reported inflation in March 2022 at 8.5% per the Consumer Price Index (CPI). First, you must know what the CPI calculation means. 8.5% is the price rate of change from March 2021 to March 2022. A rate of change is a snapshot percentage change for a particular time period, in this case, the past twelve months. So let’s say that prices continue to rise over the next year by 4.2%. That is very painful inflation and higher than the historical average yet the March 2023 CPI would be at 4.2% meaning inflation had dropped by more than 50%. So there you have it, inflation both increased by 4.2% and fell by over 50% at the same time.

The reality is that absolute inflation is increasing nearly all the time (except during extreme deflationary times like the Great Depression), but the rate of change is what is reported. Don’t get confused by the headlines and realize that fiat currency is not a store of value no matter what statistics are presented by the governments that create them.