Medical Care: The bottom line in the relentless rise in health-care costs is that market forces don't work very well in this industry. This is why every modern industrialized country, except the U.S., has a single-payer government option or something like it. Even worse, the drug industry has persuaded Congress to bar government-run health programs from negotiating lower prices.
Food and Beverages: Prices for milk, beef and most other foodstuffs soared in the 2000s, as the U.S. dollar lost 41 percent of its value (many commodities are priced in dollars) and commodity prices soared.
Housing: During the 2000s housing boom, when lending standards evaporated, home prices went up two and three times their normal rates. But the Bureau of Labor Statistics had the cost of housing as falling. Why? The BLS uses something called owner’s equivalent rent, and it tends to give false reads on housing prices.
When more people are buying and driving up home prices, it means less demand for rental units, leading to lower prices. During the housing bust circa 2006-2011, they showed the opposite. Fewer buyers meant more renters, and so rental price gains were robust. I don't know the best way to gauge real estate prices, but tracking owners’ equivalent rent creates a distortion.
Toys: Manufacturing has been outsourced to lowest cost parts of world, hence prices have plummeted.
Wireless Services, Software, TVs: Technology prices benefit from two key factors: the technology adoption lifecycle and manufacturing economies of scale. The long and short of it is that as new products enter the mass market they move down the unit-cost scale, from quirky one-off devices to cheap commodity goods. Think about the first flat screen televisions at more than $10,000 plus; versions that are as good or better than those now cost $500.
So what might we conclude from looking at the chart’s component parts? Maybe only that it's a little easier to see why the Fed has been having a hard time getting inflation to rise. While some prices are indeed up, many powerful forces have driven other prices lower -- and these are forces that the Fed can't easily influence. Until there is a substantial and sustained increase in wages (or a huge drop in the dollar), inflation may very well remain below the Fed's 2 percent target for a long time to come.
This column was provided by Bloomberg View.