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The Uneven Effects Of Inflation

RACHEL MARTIN, HOST:

So maybe your grandpa used to tell you a version of this story. When he was young, he had to walk to and from school - uphill both ways, of course - in the snow. But, he could also buy a Coke for about a nickel. Now a Coke is going to cost you around $1.75. That change in the price of a Coke is in part because of inflation. From 1997 to 2017, the overall rate of inflation was 55.6 percent. Put another way, if all the stuff you were buying in 1997 costs around a hundred bucks back then now it's going to cost a hundred and fifty-five dollars. Let's bring in Cardiff Garcia of NPR's new podcast, The Indicator, from Planet Money. Hey, Cardiff.

CARDIFF GARCIA, BYLINE: Hi, Rachel.

MARTIN: Fifty-five point six percent inflation. What does that mean? Is that a good thing or a bad thing for the economy?

GARCIA: That's actually quite normal because that just means a little bit more than 2 percent inflation. And, of course, it's fluctuated. Sometimes it's more than that. Sometimes it's less than that, like it is right now. The more interesting story is in the details because the inflation rate is just an average in the change of prices of things that a typical American buys, but some of those things get more expensive and some of them get a lot cheaper.

MARTIN: What stuff has gotten cheaper?

GARCIA: Mostly tangible stuff. The stuff you can touch, like goods. So if you look at TVs, toys, computer software, things that have to do with the information technology revolution, these things all cost way less than half of what they did 20 years ago. Furniture, clothes, these are also becoming more affordable because they've stayed about the same price during a period in which incomes have continued to go up and the overall inflation rate has gone up. But when you look at services, that is a totally different story. So services, of course, the things that require human-to-human interaction, right? Medical care services. So the treatment you get at hospitals, nursing homes, dentists. And the cost of health insurance, that's gone up. Child care has gone up. And then there's the big one, which is college tuition. The sticker price of college tuition has more than tripled in that time.

MARTIN: So why? Why are goods cheaper and services more expensive?

GARCIA: It's a pretty simple story. Goods are easier to trade across borders, and that means that we have the option of buying the cheapest good from the country where those goods are made more cheaply. Services are a little bit harder to do. If you need a babysitter, it's hard to contract one from another country to watch your kids this Friday. And the other reason is technological innovation. It's just easier to automate the making of tangible things, of goods, than it is services.

MARTIN: So bottom line, goods cheaper, services more expensive. What does that mean for us? What does that mean for how we live our lives?

GARCIA: If you look at some of the things that have gotten much more expensive, those are the things that low-income and middle-income people in particular need in order to elevate themselves in the labor market. So expensive college tuition is the kind of obvious example because we know that people who graduate from college make more money throughout their careers. But the same thing applies for child care services, which allows parents, young parents, to keep working while also raising kids. And so we have these amazing new gadgets, and they're becoming more and more affordable. Health care, child care, education - these are all the things associated with families, with starting a family and providing for a family, and that has become increasingly daunting.

MARTIN: Cardiff Garcia. He's the co-host of NPR's new daily podcast, called The Indicator, from Planet Money. Hey, Cardiff, thanks for the explainer.

GARCIA: Appreciate it, Rachel. Thank you. Transcript provided by NPR, Copyright NPR.