- Question
- Is inflation understated?
- Position‹3 of 3
Inflation is accurate, but ignores varying demand elasticity among its components
The fastest-inflating components of CPI are demand inelastic. You can delay or decline a TV purchase, but not a hospital stay. Demand-inelastic items therefore consume an ever larger proportion of the consumer budget. This is most noticeable to lower-income consumers, who perceive a creeping loss of financial control, even if their total spending is growing only slowly.
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