I know I’m a few days late to this, but confusion persists around the web about President Biden’s claim to “zero inflation” in the July inflation report.
Here’s what the inflation report said: The consumer-price index (CPI) increased by 0 percent from June to July and by 8.5 percent over the past twelve months.
Here’s how these numbers come to be:
The CPI is a regular old number, not a percentage. It is calculated by the Bureau of Labor Statistics, and it represents the price level of a group of items that people commonly purchase. In July, it was 295.271. Again, that’s just a number; it’s not dollars or a percentage. That number doesn’t mean much to anyone, which is why the inflation report puts it into context with percentages.
The BLS offers a month-over-month change and a year-over-year change. In June, the CPI was 295.328. To calculate the month-over-month change, find the difference between July and June, then divide by June and multiply by 100.
[(295.271 – 295.328) / 295.328] * 100 = -0.0193%
The BLS rounds to the nearest tenth of a percent, so it’s a 0.0 percent month-over-month change in the CPI.
The month-over-month number is not usually what makes headlines, though. The year-over-year number is what normally gets reported.
To calculate that, find the difference between July 2022 and July 2021, then divide by July 2021 and multiply by 100. The July 2021 CPI was 272.184.
[(295.271 – 272.184) / 272.184] * 100 = 8.4822%
Again, round to the nearest tenth of a percent to get the 8.5 percent year-over-year change.
We generally refer to positive changes in the CPI as “inflation” and negative changes as “deflation.” Both the 0.0 percent month-over-month number and the 8.5 percent year-over-year number are measures of the change in the CPI. They just use different starting points.
You can pick any date you want as the starting point. Since April of this year, the CPI has increased by 2.3 percent. Since April 1999, it has increased by 78 percent. Those are also measures of inflation.
So when Biden said “zero inflation,” he was using political sleight-of-hand to get people to think that inflation went from 9.1 percent, the widely publicized number from the June report, to zero. But he’s conflating the month-over-month number with the year-over-year number. Using the year-over-year number consistently as the meaning of “inflation,” which is how the numbers are most commonly reported, Biden could have more honestly said that inflation declined from 9.1 percent to 8.5 percent between June and July.
The CPI is not the only way to report inflation. There’s also the personal-consumption-expenditures index, which is what the Fed uses. There’s the producer-price index. There’s the employment-cost index. There’s the GDP deflator. There are specific price indices for sectors and products. A positive percent change in any of those variables over any period of time can be reported as “inflation.” (Really, the term “inflation” originally didn’t apply to any of those things, but rather to the money supply.)
But to ordinary people who read the news, “inflation” has become shorthand for “positive change in the CPI on a year-over-year basis as reported each month by the BLS.” Using that definition, inflation for July was 8.5 percent, not zero.