Inflation is everywhere! (Just not the kind you think)

at 11:08 AM ET, 04/24/2012


Is it time for latte NGDP targeting? (Lavanya Ramanathan)
There isn’t much price inflation in the rich world right now — central banks mostly have that problem tamed. (Some economists even argue that bank officials are too fanatical about fighting rising prices.) Yet as the Economist reports, there’s inflation in nearly every other aspect of our lives:

Estimates by The Economist suggest that the average British size 14 pair of women’s trousers is now more than four inches wider at the waist than it was in the 1970s. In other words, today’s size 14 is really what used to be labelled a size 18; a size 10 is really a size 14. (American sizing is different, but the trend is largely the same.) Fashion firms seem to think that women are more likely to spend if they can happily squeeze into a smaller label size. But when three out of four American adults and three out of five Britons are overweight, the danger is that size inflation reduces consumers’ incentive to eat less.
Meanwhile, food-portion inflation has also made it harder to fight the flab. Pizzas now come in regular, large and very large. Starbucks coffees are Tall, Grande, Venti or (soon) Trenta. “Small” seems to be a forbidden word.

There’s a whole armada of other examples in the story, from endless grade inflation in colleges to job-title inflation to the ever-expanding definitions of what counts as a “deluxe” hotel room. Just wait until branding inflation hits the aspirin industry — what do we suppose will come after “extra strength” and “maximum strength”?

Now, this is hardly the most pressing problem facing the economy, but the Economist argues that this sort of everyday devaluation of standards can cause havoc all the same: “It obscures information and so distorts behaviour.” Rampant job-title inflation, for instance — in which vice-presidents are everywhere and paperboys become “media distribution officers” — can make it difficult for employers to figure out what to pay workers.

Yet it’s not at all clear how these lesser-noticed types of inflation could ever be restrained. There’s no central bank that can raise interest rates when clothing sizes are spiraling out of control. Back in 2004, Penn State’s Michael Bérubé offered up some ideas for how professors could recalibrate grades handed out in college and keep that inflation in check. But for some mysterious reason, latte-size inflation hasn’t come in for the same sort of scrutiny.

 
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