The Daily - Why Inflation Doesn’t Affect Us All the Same

Episode Date: May 12, 2022

Fresh data from the U.S. government on Wednesday showed that inflation was still climbing at a rapid pace, prompting President Biden to say that controlling the rising prices was his “top domestic priority.”But not everybody experiences inflation equally. Why is that?Guest: Ben Casselman, an economics and business reporter for The New York Times.Want more from The Daily? For one big idea on the news each week from our team, subscribe to our newsletter. Background reading: What’s your rate of inflation? You can answer seven questions to estimate your personal inflation rate here.Rising prices could hurt Democrats in the midterms, and Mr. Biden has sought to turn the debate over the economy against his opponents.For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday. 

From The New York Times, I'm Michael Barbaro. This is The Daily. The numbers, please. And here they are, our consumer price index for the month of April, headline up 8.3%. On Wednesday, new numbers from the U.S. government showed that inflation is still climbing at a rapid pace. Let me give you some context, guys. A year ago, if you go back to this headline number, we're at 8.3 percent for April. A year ago, we were at 4.2 percent. We have doubled these numbers over the last year. And President Biden has now declared war on rising consumer prices.

I want every American to know that I'm taking inflation very seriously and it's my top domestic priority. Today, my colleague, economics reporter Ben Castleman, on how inflation is likely to actually affect you, depending on where you are in life. It's Thursday, May 12th. It's Thursday, May 12th. Well, Ben, welcome back to the show. Thanks for being in the studio. Thanks for coming in the office.

We appreciate it. The pizza may have played a role. It's Wednesday. It's pizza. Free pizza day. Right. It's not about us. It's about the pizza.

You said it, not me. So we want to talk to you, surprise, surprise, about inflation, which remains the dominant story of the U.S. economy right now. And I want to start by asking you about this inflation calculator that I know you helped create. What is the idea behind it? Well, so inflation right now, as we all know, is running at the fastest rate in decades. And the reality is that your inflation experience and my inflation experience and my mom's inflation experience are going to be different based on where we live and how we spend our money and how we live our lives. And so what we set out to do was to illustrate that a little bit and to give people a way of understanding the inflation they're feeling

and to get a little bit of a real picture of that, but then also to give people a sense of how those different experiences can really drive how they're experiencing inflation in different ways. Right. And just to explain exactly what this inflation calculator actually is, it's a kind of quiz with a short series of questions. And once you answer these questions, voila, you get an actual number. And that number tells you just how much inflation is affecting you. Yeah. You tell us a little bit about your spending over the last year, and we tell you your rate of inflation.

Okay, so in the spirit of candor and experimentation, I'm going to fill out this inflation calculator that you all have created right here. I'm going to talk about the results. Do it. I'll do it along with you here. Okay. So the first question in this calculator is, did you buy a car in the last year? And the answer is, for me, yes, I bought a used car.

Had a kid. Needed a more reliable vehicle. So I'm going to click, I bought a used car. I can already tell you this is going to be bad news for you. Because? Car prices, pretty crazy right now. Supply chain issues, big levels of inflation. Lots of demand, absolutely.

Okay, how much do you drive? There's a drop-down menu, at least 400 miles per week? No. Between 150 and 400 miles per week, that's high. I see less than 150 miles per week. I'm going to click that. It's probably a little less than your average American. Okay.

Next question. How much do you travel? I'm going to click, I typically take a trip or two per year. Keep going. Are you a vegetarian is the next question. I am not a vegetarian. With apologies if that applies to you.

Next question. Do you heat your home with oil? I do heat my home with oil. How often do you eat out? I'm clicking I typically eat out one or two days a week. Final question, do you pay for school? And I'm seeing as an option, I pay for daycare or preschool. I do pay for daycare. Okay, I have just finished this quiz, and I have gotten my inflation rate, and it is high. It's 12.5%. My personal rate of inflation is 12.5%.

That's a big number. Yeah, it's a lot. Do you want to hear my inflation rate? Maybe. What is yours? 7%, Michael. Really? So I didn't have to buy a car, which is a big part of it.

And you know what's interesting, right? We've got these different rates of inflation. You and I are pretty similar in a lot of ways, right? We're, you know, early middle-aged white guys in the New York area. There are people with significantly larger differences right now, both in the rates of inflation that they're experiencing, and in their ability to deal with that inflation and to navigate their way through this economy right now. If you imagine people in different income brackets, in different geographies,

or, you know, one way I like to think about it is in different stages of life. They're experiencing this economy in very different ways right now. Well, let's talk about stages of life and how that positions people to absorb or not absorb this pretty meaningful level of inflation in the U.S. economy. How do you think about that? I kind of think about it as sort of three phases. There's how are young adults just getting going in their careers? How are they doing? There are how are young adults just getting going in their careers?

How are they doing? There are how are people in kind of the broadly defined middle age doing? And then there are retirees who are having a very different experience of this economy right now. Okay, well, let's talk about

these three categories. Let's start quite naturally if we're dealing with the life cycle with younger Americans. What is their experience of inflation? And how are they positioned right now to experience inflation in this moment? So young people, young adults are doing pretty well right now. This is a generality, right?

And this is going to be true across all of these age groups, right? There are tremendous variations among different people in different circumstances. There are plenty of people who are struggling in all of these groups. But young people as a whole are positioned pretty well right now. And that may be surprising. It is. Because a lot of the things we're talking about when we talk about inflation are hitting young people pretty hard. Young people on average have lower incomes, right? So a lot of their money goes towards things like food and gas, which are things that are rising really rapidly in price right now. As a percentage of their overall income.

As a percentage of their income. They're more likely buying used cars rather than new cars, right? And used car prices are crazy. They tend to rent rather than own and rents are going crazy. So many of them are probably dealing

with faster than average inflation. But they are also really benefiting from the parts of this economy that are working well right now.

You know, you and I have talked about this before, how there are all these working well right now. You know, you and I have talked about this before, how there are all these job openings right now. Employers are desperate to hire, and workers are able to play employers off of one another to get better pay and better opportunities. And young people are really the ones

who are in the best position on average to take advantage of that. Just explain why that is. Well, so imagine a couple of young people right now, you know, maybe one, a new college graduate, one who didn't go to college. Both of them are probably in a position right now to really seek out those best opportunities. You know, the guy who didn't go to college, maybe he's working in fast food. Maybe he's working in retail.

Maybe he's working construction and could have easily seen pay go from $10 an hour to $12 an hour to $15 an hour. You know, we're hearing now about places paying $18 an hour for jobs that would have paid minimum wage a few years ago. that would have paid minimum wage a few years ago. And those people are in a position much more readily to go and say, hey, look, I'm working at Chipotle right now, but the Qdoba down the street is paying a buck more an hour, so I'm going to go take advantage of that. You know, it's easy to sort of move back and forth.

And we hear, I talk to people all the time who are doing exactly that. For the college graduate, right, it's probably a little bit different. It's probably a little bit less of that like chasing, you know, a dollar more an hour. But you graduate from college right now, you can get a job. Chances are you can get a job where you have a fair bit of flexibility around, you know, exactly the nature of that job where you may be able to advance quickly because people are moving around above you. And we know from economic research that entering the job market during a

strong period for the economy sets you up for the future in a really important way. People who graduated from college in 2008, 2009, the last recession, took years to overcome that hurdle of not being able to find a decent job when they got out. Young people today are graduating into an environment where they can, I don't want to say write their own ticket, but they've got a lot of opportunities. And that is really optimistic for the future.

Right, and the thing about being young is that you can take risks with your career that older people are just less inclined to take, to jump between jobs, for example, because their obligations are different. Their risk aversion is greater. You can take risks. You can move to where the jobs are better. You don't need to worry about the house or the car or the kid in the same way, right?

Yeah, you've got that kind of flexibility that you don't have otherwise. So in general, young people are relatively, and I guess, surprisingly well positioned to absorb all this inflation we're talking about. That seems to be the big takeaway. Yeah, they're the ones who are most likely to be getting the pay increases to keep up with price increases. And there's another wrinkle here. Lots of young people have student debt. And right now, of course, student debt is on pause. They're not needing to make those payments, right? So that's a big advantage.

And even if those payments start back up again, whenever that happens, you know, those debts are in fixed dollars. And what is inflation? Inflation is the value of the dollar getting smaller. So as we see inflation pick up and people's wages pick up to keep up with it, then those debts actually get smaller in terms of a share of young people's budgets. So a final benefit of inflation for a young person is that in relative terms, it reduces the burden of their debts. That's right.

Okay, so what about middle-aged Americans? How are they positioned to handle this moment of inflation? And how exactly are we defining middle age? I'm defining middle age very broadly here, right? Think about people in their, you know, 30s, 40s, 50s, more likely to have kids, more likely to have mortgages, right? More likely to have all of the things that make them not as flexible as all those young people we were just talking about. And so a lot of middle-aged people right now are getting squeezed. They don't have that opportunity to move around easily between jobs.

You know, you think about risk-taking in youth, right? This is like Mac's risk aversion moment. It's not that easy to pick up and start a new job or look for a new job when you've got the mortgage on the line, when you've got the kids you've got to be paying for. So I think they're not able to take advantage to the same degree of all the things

that are good in the economy right now. And they're still dealing with a lot of the stuff that is bad in the economy right now in terms of inflation. Well, talk through that. The kind of financial life of a middle-aged American when it comes to inflation. Think about this as a group that is often going to have a commute. And so they're going to be dealing with gas prices. They're going to need to-

Replace a car. Replace the car. And look, if you've got kids really thinking about the safety of the car, and so you don't want to drive that junker around, right? Childcare. Childcare is a huge expense. Food, right? If you've got kids again, right, is going to be a huge expense. They're dealing with all of the things that are getting more expensive in life without having the same ability to go and hunt down the better pay, better options that young people may be able to go and chase right now. Thus the squeeze. Less opportunity for wage growth and a greater likelihood of being hit

by all these inflationary categories. That's right. There is one big caveat to this, which is housing. People in sort of the broadly defined middle of life are more likely to own their own homes. Well, if you own your home and you've got a fixed rate mortgage, right? Home price, it can go crazy. It doesn't matter to you. Your costs don't go up.

Right, you're locked into a monthly cost that will not change in most cases for 30 years. And I guess like student debt, in a moment of inflation, this kind of debt becomes a smaller overall share of your budget. Yeah, and in fact, if you've refinanced in the last couple of years

as millions and millions of Americans have, you may be paying less for housing now than you were a couple of years ago. So home ownership is a meaningful way to escape a significant part of inflation. It has been recently. Now, how many Americans and how many middle-aged Americans

do we estimate are homeowners? Well, so a majority of Americans own their homes. And that's a substantial majority in that middle-aged bracket, right? So this is going to be, a lot of people are going to have that advantage, even as they're getting squeezed in all these other ways. This also highlights, right, how these experiences can be very different for different people.

If you've got all those things, you've got the kid and you've got the car and you've got the food and you've got the gas, but you're renting and you're dealing with the rising cost of rent right now in many cities, then you are really getting squeezed. Right. So the story of middle-aged Americans is much like middle-age itself. A little bit of a bummer. I think that's true for a lot of people right now. And we haven't even gotten to what it's like to try

to live in retirement right now. We'll be right back. So, Ben, let's talk about what inflation is like for retired Americans. What do we need to know? Well, so all that stuff we talked about, about the good job market and lots of job openings and playing employers off each other, by definition, none of that is relevant here. Right. You're out of the job market. You're out of the job market. You're out of the job market. So retirees are not benefiting from those pieces of the economy that are working really well for them. Right. And I tend to think of retired workers as, in general,

not being especially well-positioned to handle something like inflation because of all the things in their lives that are inflexible, right? Yeah. I mean, that's right. Retirees, in many cases, are living on a fixed income, right? The money that's coming in every month is what it is, or they're drawing down retirement accounts. Or drawing down savings. Or drawing down savings.

And they're dealing with all the costs of living. And so there's often very little flexibility in that budget. And we know that retirees in particular tend to be really worried about inflation. We see that in survey data. I certainly hear that when I'm talking to people. That said, it's a little bit more of a complicated picture than you might initially think.

Why? Well, so for one thing, on the cost side of the equation, retirees are very often going to be homeowners. They are often going to be driving less, right? We don't have that commute problem, right? They may be spending less of their budget on some of those things where we're really seeing a lot of cost increases right now. And although we talk about retirees as living on a fixed income, that's not always the case.

Social security in particular is indexed to inflation. Explain that. So the Social Security check that you get every month, once a year, gets adjusted based on cost of living, based on the consumer price index. Consumer Price Index. And earlier this year, retirees, Social Security recipients, got the biggest increase in their monthly checks that they've gotten in 40 years. A 5.9% increase. And assuming that we continue to see the kind of inflation that we've seen, next year they will get another increase. So the government understanding that retired Americans are on something like a fixed income literally boosts the payments it's giving to tens of millions of retired workers. That's right.

Now, look, this is every year, not every month. And so, you know, when gas prices spike the way they have recently, it's not like everybody's check suddenly gets bigger as a result. And retirees obviously don't have the ability to go to their employer and say, come on, you've seen what's going on with gas prices. You've got to give me a raise. So I don't want to overstate the degree to which they're insulated from this. To be clear, many retirees are absolutely getting squeezed by rising prices and a limited ability to increase their income. But when we look sort of across broad averages, retirees are often in many cases going to be in a better position than some of those middle-aged people that we were talking about earlier.

Right. Or the popular imagination of the retired worker who's kind of stuck. We have this idea of like retirees, there's nothing they can do, and it's not always quite as simple as that. So, Ben, now that we've surveyed the impacts of inflation across these various age brackets, what's clear is that the impact of inflation is very broadly felt. I mean, depending on your age,

you're going to experience it differently, but it's hurting almost everyone. And so to return to the inflation calculator for a moment where we started this conversation, that makes me wonder if there are ways for people to lower their personal inflation costs. It seems like a natural place to start would be with the categories that you identified as the biggest sources of inflation. You know, your car, your driving, your meat consumption.

Yeah, I mean, it's really tempting you know you look at this inflation calculator and you say oh cars are way up so you know try not to buy a car and you know looks like it's cheaper to be a vegetarian i'll drop meat it's not really that simple for a couple of reasons the first is that a lot of the things that have been rising most quickly in price recently are things where it's pretty hard to cut back. Maybe you can find some ways to drive a little bit less to, you know, combine some trips together, right? But if you've got a daily commute, you've got a daily commute.

The grocery store is 10 miles away. It's 10 miles away, right? What are you going to do about this? You can't cut back and say, we're not going to eat this week. Also, the things that have risen the most in price over the last year are not necessarily the things that are going to rise the most in price

over the next year. We've actually seen used car prices have started to edge down a little bit recently. Oil prices, you know, been up and down, but we can all hope that if things kind of calm down in the world recently. Oil prices, you know, have been up and down, but we can all hope that if things kind of calm down in the world, that oil prices will start to come down.

So you can end up in this place where you sort of are constantly fighting the last war and trying to adjust your spending to account for things that have already happened. Trying to target your inflation rate is probably not a realistic way

to live your life. So what is the best way at a moment when, whether it's 7% or 12.5%, our lives are just getting that much more expensive, that you can cut costs if you're not recommending here going after the most identifiable sources of inflation? Well, so my best advice is the thing that I think a lot of people are probably already doing, right? Which is that when the cost of living goes up, they find places that they can cut back in the budget, even if it's not necessarily cutting back on things where prices are going up really rapidly. You know, clothes prices have not been on fire recently, but you know, maybe you can cut back your clothes spending a little bit

and save a little bit of money in the budget. And I think this highlights something really important about inflation, which is that totally aside from whether you're experiencing a fast inflation rate or a slow inflation rate, inflation really hurts people the most when they don't have that kind of flexibility in their budgets. Somebody can't say, I'm not going to buy milk for my kid this week. You know, I'm not going to pay the electrical bill this month. If you're already buying the off-brand laundry detergent, you can't cut back to that. And so there are a lot fewer options to cut back on your spending when you're poorer. And that's why inflation is such a problem for poor households. Right, because it means the baseline, that which was supposed to be reliably affordable, is just that much less affordable.

That's right. And a lot of the things that are rising rapidly in price right now are things that it's just very hard to avoid. Right. I mean, quite literally the pillars of our lives, gas, food, car. And if you're a renter, rent. So, Ben, how long, and I know you don't like predictions. So based on your reporting and the data you spend time with, how long are we going to be in this inflationary universe that we have been talking about where so many people need to make these cutbacks to absorb these higher costs? Are we

looking at a year, two years, six months, five years? They told me I couldn't come in the studio unless I promised not to say time will tell. So I won't say that. The guards explicitly warned you. What I'll say is this. We know that Russia's invasion of Ukraine has driven up gas prices. We know that the pandemic is still going, and in particular, having a big effect in China, leading to lockdowns, exacerbating all the supply chain issues that we've all been

talking about. Right, and leading to higher prices among all the products we get from China. We know we're still dealing with this really tight labor market and the wages that come with it, so we know that these forces are still in place. We know that the Federal Reserve is trying very hard to fight inflation by raising interest rates, but that none of that is going to have an overnight impact. And what that means is that whether you're a young person trying to take advantage of this strong job market, but dealing with rising rents, or you're a middle-aged person dealing with all of the costs of life or a retiree kind of looking at that retirement count and getting nervous, right? All of these people are going to have to deal with the reality of higher prices and adjust their lives accordingly. For quite some time. For quite some time.

For quite some time. For quite some time. Ben, as always, thank you very much. Thanks for having me. We'll be right back. Here's what else you need to know today. Now, Madam President, the question before the Senate is simple. As women's rights face their greatest threat in half a century, will this chamber step into the breach and protect the basic right to choose?

On Wednesday, Senate Democrats tried and failed to pass legislation that would guarantee the right to an abortion. passed legislation that would guarantee the right to an abortion, seeking to enshrine in federal law what they fear will soon be struck down by the Supreme Court. But the bill, which would outlaw any limitation on abortion before fetal viability, failed to win even a simple majority. It was opposed by Democratic Senator Joe Manchin and all 50 Senate Republicans who called it overly permissive and extreme. There was a time when the Democratic Party talked about abortion as safe, legal, and rare. Safe, legal, and rare.

Not anymore. This legislation is not from your mom's Democratic Party. And the families of the 98 people killed last year when a condominium tower collapsed in Surfside, Florida, have reached a nearly $1 billion financial settlement. $1 billion financial settlement. The money will be paid by a long list of defendants, including insurance companies, developers, and engineers, some of whom discovered serious structural problems in the tower before its collapse. Today's episode was produced by Stella Tan,

Rochelle Banja, and Muj Zaydi. It was edited by John Ketchum, contains original music by Marian Lozano, Dan Powell, and Rowan Nemisto, and was engineered by Chris Wood. Our theme music is by Jim Brunberg and Ben Landferg of Wonderland. That's it for The Daily. I'm Michael Bilboro. See you tomorrow.