- Inflation measures track prices of common goods, but they fail to capture worrying COVID-era trends.
- The labor shortage and supply-chain crisis have simply made customer service worse in many cases.
- Economists have no way to track this, leaving experts in the dark as they navigate the recovery.
You've probably been out to eat recently. If it was your first time out in a while, you noticed some changes.
That $6 beer might be $9, if you live in New York City, and the menu is probably more limited. Maybe there's a QR code you have to scan to bring up the menu, too.
This is what economists mean when they talk about inflation and automation as big changes brought on by the pandemic.
But did you find yourself ... waiting a long time for your food? Or for someone to even talk to you? Was the wait so long you got a little angry and snapped at the wait staff? (Take it easy, now, don't make a scene.)
This is a very real thing impacting the economy, but there's no way to measure it in any data that any economist has ever dreamed up.
The country's top inflation measures - the Personal Consumption Expenditures price index and the Consumer Price Index - both track price changes across a wide range of goods and services. They have remained elevated in August as the Delta wave intensified and supply-chain bottlenecks worsened, but they don't tell the story of the slow, annoying experience described above.
Restaurants' wait times have worsened as owners scramble to staff up. Shipping delays are so bad that furniture resale is expected to become a $16 billion market. And hotels are ending once-common practices like turndown service to keep up with demand.
Inflation is changing what you get for the same pre-pandemic price and leaving Americans with worse quality than before. The total blindness of this for the economist profession shows how little we still know about what inflation actually is, and what you can't see can hurt you.
What economists can and can't see
One of the key features of inflation indexes like PCE and CPI is "hedonic adjustment." As the quality of goods and services changes over time, BEA and BLS adjust prices to reflect whether you're getting more or less for your money.
The classic example is TV sets: In the 1990s, a big screen TV cost well over $1,000, but was also massive, awkward, and generally suffered from blurry image quality. In 2021, you can get a 50-inch TV set for under $500 - a huge decline in price in and of itself - but that also has a photo-realistic 4K resolution and connects directly to the internet, allowing for instant high-definition "The Office" binge-watching sessions. That increase in quality is factored into the BLS' price estimates for TVs, which have seen a 98% decline in their price index since 1990.
But it's not really possible to measure hedonic changes for many things. Counting the ever-increasing number of pixels on a TV screen is one thing, but quantifying the effect of an overworked restaurant server is another.
BLS only measures hedonic adjustment for a fraction of the goods and services in the CPI basket, owing to those difficulties. Even without factoring in those hard-to-measure quality changes, prices for things like restaurant meals have been marching up since the pandemic:
Other economic commenters have noted possible hidden hedonic inflation. Alan Cole at Full Stack Economics gave the example of the subpar complementary breakfast during a recent hotel stay, while The New York Times' Neil Irwin recently cited several examples of this kind of "shadow inflation" in an article.
From its onset, the COVID recession was different. The downturn was self-imposed as the government forced strict lockdowns and business closures. The path of recovery hasn't been dictated by economic activity, but by the coronavirus's spread. Now, as inflation emerges in areas beyond simple prices, it's forcing a rethink of just how effective the typical indicators are at measuring the economy.
Each month brings a new normal for consumer spending. That's put CPI and PCE to the test, and throughout the US economy, they're failing to tell just how bad the situation is.