Inflation is Downright Tame, By One Measure

Beyond the Headlines: Personal finance news and research you may have missed

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If you’ve been following financial news, you’ve seen all sorts of symptoms of an economy and a country in transition.

While the government has set the final countdown on bans on evictions and foreclosures—they will both expire without any further extensions on July 31—it has made safeguards to prevent a wave of foreclosures. Meanwhile, it’s also preparing to launch a revamped child tax credit unlike anything we’ve seen. (Take note: If you have child dependents and your circumstances are likely to change before next year, you might want to consider declining the monthly cash payments headed your way starting July 15. Just use the portal on the IRS’s website.)

You’ve probably also read that many workers are rethinking their careers in COVID-19’s aftermath or having misgivings about going back to the office after more than a year of remote work. And in the housing market, you may know that sales volume continues to slow down, though not for lack of demand. No, it’s the high prices and shortage of homes for sale that’s stifling the market. In fact, prospective buyers have resorted to things like personal letters to gain an edge in bidding wars.

But here’s what may not have made your radar, especially if you are getting ready for a Fourth of July road trip like everyone else. Did you know that inflation is actually quite tame by one measure, in spite of skyrocketing prices for gas, cars, and food? Or that when Black politicians are elected, Black workers and borrowers suffer backlash in their communities?

To reach beyond the biggest headlines, we scoured the latest research, surveys, studies, and commentary to bring you the most interesting and relevant personal finance news you may have missed.

What We Found

Inflation Is Not That Bad—Depending How You Measure It

Anyone who’s left the house in the past few months has probably noticed the proliferation of soaring prices, especially for travel-related expenses like cars, plane tickets, and vehicle rentals. Yet when policymakers at the Federal Reserve talk about inflation, they don’t seem terribly alarmed about it—Fed chair Jerome Powell said earlier this month that the price increases were “temporary” and limited to certain categories.

So, how could leaders like Powell keep such cool heads about inflation when measures like the widely used consumer price index (CPI) and the closely-related “core CPI” are flashing red alerts? The officials might be looking at other measures of inflation, including one which, charted out, looks more like gently rolling foothills and less like the face of a cliff.

The median CPI is an alternate measure of inflation that’s made very differently than the headline-grabbing CPI. The CPI, calculated by the Bureau of Labor Statistics, measures how much prices change for a whole list of goods and services that people typically buy, such as housing, transportation, clothes, and healthcare, and averages them together.

But the CPI has a weakness, says Robert Rich, director of the Center for Inflation Research at the Cleveland Fed. Because it can be swayed by items that might suddenly—and temporarily—jump in price, it’s not as useful for telling whether persistent and ongoing inflation is taking hold.

It would be a mistake for policymakers to react to these temporary price changes, Rich said. Instead, they look for the underlying trend that’s likely to persist into the future. For example, used car prices jumped a record 10% in April, but Fed leaders chalked that up to unusual and temporary circumstances—such as rental car fleets not putting as many cars on the market as they normally do—and not to some fundamental problem with the economy.

Filtering out such outliers is where measures like core CPI and median CPI come into play. Both rely on the same data that goes into calculating the CPI, but  the core CPI leaves out food and energy because those prices tend to swing wildly. The median CPI takes an entirely different approach. Rather than assuming that food and gas are the volatile items, it discards all items except for the one that’s in the exact middle of the mathematical distribution of price changes.

“When you construct measures like core CPI or median CPI, you are trying to essentially take out those changes that you don’t think are going to be persistent going forward,” Rich said.

That means the median CPI is only going to surge if price increases are widespread, Rich said. So while the median CPI may look out of step with the hit that your budget is taking at the grocery store or the gas pump, it just might provide a better sense of where inflation is headed in the future.

Black Politicians’ Victories May Cause Prejudice to Rise Among Some Whites

Racial inequality is well documented in many areas of the economy, including in housing, where a recent study found that Black homeowners were only half as likely as White ones to take advantage of record low mortgage rates during the pandemic to refinance their loans.

Ironically, these differences might actually get worse when Black politicians are elected to public office, according to research published in May by researchers at the Chicago Fed, who conducted a study in response to discussion about the impact of Barack Obama’s presidency. While some past research has found that negative stereotypes have been dispelled when Black politicians won elections, other studies have found that electing Black candidates can cause a backlash among White Americans who found it threatening.

The results of the Chicago Fed’s study pointed toward an increase in discrimination. White residents scored higher on a test measuring racial bias after Black candidates won elections. There were real economic impacts, too, with a close electoral victory by a local Black candidate making Black people 3.5 percentage points more likely to be rejected for mortgages relative to White applicants, and 2.5 percentage points more likely to become unemployed. Racial discrimination was the most likely explanation for these gaps, the researchers argued. 

Child Tax Credit Debate Is a 1960s Throwback

The monthly child tax credit payments of up to $300 per child, which will start arriving in bank accounts and mailboxes of most families with children starting July 15, represent one of the more ambitious social safety net programs in recent years, even if its execution has drawn criticism.

And as President Joe Biden and Democratic politicians maneuver to extend the changes beyond 2021, the debate over whether to do so is inspiring deja vu for scholars familiar with the history of welfare. In fact, the child tax credit is remarkably similar to a 1969 plan by Richard Nixon to support families with cash subsidies, said Leslie Lenkowsky, a professor emeritus of philanthropic studies at IUPUI, an urban research university in Indiana, in an article for The Conversation.

Not only is the plan similar, but so are the arguments being made for and against it, Lenkowsky notes. Now, as then, proponents say more benefits for families with children will reduce child poverty, while conservative critics contend that such benefits might discourage parents from working.

The critics might also be hoping for an outcome that’s similar to the fate of the Nixon-era proposal.

“Although it was the centerpiece of the Nixon administration’s domestic policy, his Family Assistance Plan died after a long and acrimonious battle in Congress,” Lenkowsky wrote.

Aid for the Unbanked Is in the Mail—Postal Banking Accounts Could Help 21 Million

You may have heard of “food deserts”—areas where there’s limited access to grocery stores and other sources of healthy, affordable food. But there are also areas where residents have little access to basic financial services.

It turns out that huge swaths of the U.S. are banking deserts. In fact, 24% of all census tracts where there’s a post office don’t have a bank or credit union branch, according to a May report by researchers at the University of Michigan. Those without access to bank accounts—who are disproportionately Black, Indigenous, and people of color and White people with low incomes—are particularly vulnerable in times of crisis, the researchers said.

For example, while most people who received the $1,200 stimulus payments from the CARES Act in March 2020 had them seamlessly deposited into their bank accounts, 20 million people had to get them by check in the mail. The aid arrived weeks or months later, and many had to use high-cost check-cashing services.

Providing basic retail financial services such as free, no-fee bank accounts at post offices is one solution to the banking desert problem, the researchers said. Doing so would allow 21 million people currently excluded from banking to send and receive money without resorting to expensive check-cashing services or payday loans. “Postal banking can ensure that everyone has access to safe and affordable financial services, and a public option can be established for easily sending relief when the next crisis arises,” the researchers wrote.

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