Diantha Ellis is Associate Professor of Business Administration at the Stafford School of Business, Abraham Baldwin Agricultural College.
This is the worst-kept summer secret: a trip to the gas station and grocery store costs more. In addition, it is becoming more expensive to keep a roof over our heads. It seems that prices are increasing for everything we buy. The new Consumer Price Index (CPI), just released by Bureau of Labor Statistics for June 20,22, supports these feelings. It shows the largest increase in CPI since 1940.
What does it mean to talk about inflation? How can an Economics instructor best explain inflation to a freshman student?
Inflation is complex than most people realize. This is not a topic that can be understood by everyone. I remind my students that they’re budding economists, regardless of whether they plan to pursue economics. Once they have completed their Principles of Economics courses they will likely be more knowledgeable about economics than the average person.
Introduce students to the Big Picture
Although inflation has been the focus of a lot of media attention lately, economists use multiple measures to assess the economic health of the country. All of these measurements are interconnected. Inflation is just one piece of a large economic puzzle that includes the Gross Domestic Product, Gross National Product (GNP), as well as unemployment.
The CPI is the most popular inflation measurement. The Personal Consumption Expenditures Price Index, (PCE) is also released by the Bureau of Economic Analysis (BEA). It tends to receive a lot of attention from the Fed. It is important to evaluate both the CPI (and the PCE) in order to analyze the direction in which Fed rates will move and stock prices will move. This ties into the price of our essential basket goods. It’s a complex puzzle that requires all the pieces to be properly analyzed. Students who focus on one piece of the puzzle will miss the key elements and not understand the whole story.
Is Inflation All Equal?
Students should also remember that not all inflation is created equal. There are many types of inflation. Some of them can be too complicated for a basic principles class. Most economists tend to identify two main types of inflation: demand-pull and cost-push, or supply side and request side. Most economists agree that the current environment shows evidence of both.
Make sure the information is relevant to your students
The textbook is a great resource for teaching inflation, but it should not be our only source, especially as information about this topic is constantly changing.
Students can access this information from multiple sources, including the BLS and Federal Reserve, Federal Reserve, Federal Reserve, FRED and other reliable news sources. The CPI Inflation Calculator is one of my favorite tools from the BLS site. It helps me get the conversation started. This tool allows students to compare the prices of certain goods, such as a house, car, or loaf of bread, going back to 1913. In today’s dollars to another time. It’s a great way to break the ice and get them thinking about how the dollar has changed over the years.
Ask them to create a grocery list and ask them to take note of the prices they pay at the grocery store. Next, compare the prices with important years in their lives (e.g., when they were born, their parents married or were married, or the year their grandparents were born or married). It’s a great way to get them interested in the topic. This helps them understand and put into context the stories their family members tell about “back in my youth, I used to pay ….””.
It’s possible that, based upon my recent grocery store trips, it is time to re-discover some old recipes my grandmother used, such as Hoover Stew and Depression Cake. This would be a great Economics lesson.
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