But all inflation isn’t the same. Some sources of higher prices pinch working- and middle-class people particularly hard and have little or no redeeming benefit for the economy; that’s the worst kind of inflation. Other sources of inflation are less painful, although hardly something to be hoped for. And a final type of inflation can actually be a good thing, given the long economic slump in which the U.S. economy has been trapped.
Bad inflation: The worst kind of inflation is driven by rising prices for the types of goods that people need to buy all the time — even when those items are more expensive. Gasoline is a prime example of this, but other examples are home gas service and heating oil, and most groceries.
When the price of gasoline or a loaf of bread rises, most Americans have to accept the increase, at least in the short run. They pay more for those products, with little choice but to commute to work and to eat breakfast, and as a consequence have less money to spend on everything else.
Adding to the pain from this bad inflation, higher energy prices are usually driven by higher prices on the global marketplace, which means that this extra spending goes abroad; when the price of gasoline rises by 25 cents, much of the extra money Americans spend goes to oil-exporting nations, not to circulate among other Americans.
In the past 12 months, gasoline has been the biggest source of bad inflation. Its price is up 6.8 percent. The price of groceries (“food at home,” in government-speak) is up a more reasonable 1.6 percent, although it is worth watching to see if this summer’s drought and higher prices for food commodities such as corn and wheat drive up those prices in the months ahead.
One piece of good news in the bad-inflation column is piped-gas service, the utility-provided natural gas people use to run their stoves and heat their homes. Its price is down 10.7 percent in the past year, reflecting lower natural gas prices.
Neutral inflation: Some other sources of higher prices are not so painful for people. They aren’t desirable, necessarily, but neither are they something to panic over. These are products that people tend to buy relatively rarely and can exert some control over when they make a purchase. If cars, televisions or computers are too expensive, for example, they can use their old ones for a few extra years.
These goods have tended to exert downward pressure on inflation in recent years, although not necessarily because of price cuts. Calculating inflation on these goods is particularly challenging, because the goods are always changing. A 2012 Honda Accord is a significantly better car than a 2000 Honda Accord, while a 2012 box of corn flakes is probably identical to its 2000 vintage.
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