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Listen to the latest economic insights from CFC experts John Suter, Sam Kem, and Antony Davies.
Welcome to the Economic and Market Watch podcast for the week of May 11, 2026. This is Antony Davies.
Antony Davies:Why does inflation feel worse than the official numbers say it should?
Antony Davies:The great economist Milton Friedman once said, "Inflation is always and everywhere, a monetary phenomenon." It's what happens when more dollars chase fewer goods and services.
Antony Davies:People often confuse inflation with rising prices. They aren't necessarily the same thing. Inflation is the rise in the average level of consumer prices. In the face of inflation, specific prices could rise, fall or stay the same.
Antony Davies:For example, March's consumer inflation spiked to a level not seen since early 2024. Since last year, the average price of consumer goods is up 3.3%, but the prices of coffee and bread are not. The price of coffee is up 30%. The price of bread is down 4%.
Antony Davies:Specific price changes aren't helpful. To measure inflation, we have to look at all prices and then we have to weight each of them.
Antony Davies:For example, Americans spend less than one half of 1% of their incomes on coffee. This means that even large changes in coffee prices barely move inflation because we don't buy enough coffee for coffee prices to be meaningful.
Antony Davies:On the other hand, a large chunk of our paychecks goes to housing and transportation. So changes in those prices weigh heavily in inflation calculations. That different prices are weighted differently is one reason why people sometimes sense that the official inflation numbers aren't correct.
Antony Davies:Another reason is observation bias. Rising prices stick out in our minds because they're painful. People know that the price of gas is up more than 30% since last year because they feel that pain with every fill-up. But fewer notice that the price of a dozen eggs is down more than 60%.
Antony Davies:Pain is memorable, relief less so. And for many, that 60% price drop doesn't register as deflation, but rather a return to normal.
Antony Davies:Just as we notice rising prices more than falling ones, we also notice certain goods more than others. The price of beef is up 12%. Tomatoes are up more than 20%. Frozen fish is up 10%. These statistics likely aren't surprising because you see these prices every time you walk into a grocery store.
Antony Davies:But these may be surprising: Prices of smartphones are down 14%. Prices of tax preparation and accounting services are down 13%. Tickets to sporting events are down 18%. If these statistics are surprising, it's probably because you buy these things infrequently.
Antony Davies:We more readily see price movements that make us mad. We more readily remember price movements that we see often and we don't experience inflation as an average, but is one annoying purchase at a time. This is observation bias, and it causes the reality of inflation and our intuitions about inflation to part ways.
Antony Davies:But even if observation bias weren't a thing, official numbers may still feel off. If you're not an average consumer living where average consumers live, buying the average things average consumers averagely buy, then official inflation numbers might not reflect your experience.
Antony Davies:For example, compared to last year, the price of bread is down 4% for the average consumer, but it's up slightly for those who live in the South. The price of bacon is down 3% for the average consumer, but up 6% for Midwesterners. Natural gas is up 6% for the average American, but 14% for those in the Northeast.
Antony Davies:Borrowing and lending, saving and investing, hedging and speculating are merely steps on a dollar's journey. The destination is the purchase of goods and services, and that means that the value of a dollar lies in its ability to buy things.
Antony Davies:The faster the money supply grows, the more dollars it takes to buy things. That's inflation. The faster the production of goods and services grows, the more things there are to buy. That's deflation.
Antony Davies:The closing of the Strait of Hormuz, the disruption of oil supply lines and expected downstream shortages are slowing economic growth, and that's contributing to inflation.
Antony Davies:One answer is to slow money supply growth also. That's something Fed chair nominee Kevin Worse has indicated that he'd like to do and it would help to tame inflation, but it comes at the cost of raising interest rates.
Antony Davies:And that is a story for another day.
Antony Davies:This is Antony Davies for the Economic and Market Watch podcast. Thank you for listening. Remember to download this week's Economic and Market Watch intelligence brief and dashboard. For more details on inflation, see last week's intelligence brief.
Antony Davies:Economic and Market Watch is available on podcast apps including Spotify, Apple Podcasts, and other platforms. If you don't already, please subscribe, rate us, and leave a review. And as always, hit us up on email, economicresearch@nrucfc.coop.