The 7% Conundrum: Why Today’s Inflation Numbers Are Not as Bad as You Might Have Been Led to Believe
With concern about rising prices alarming Americans, the mainstream media doesn't help matters when it portrays the inflation data in misleading terms, even if accidentally. Here’s a case study in the real impact of even unintentional misinformation in today’s viral media environment.
Inflation. You can’t turn on the TV today or visit your favorite news site without seeing a story touting just how bad the inflation situation is currently. Of course, you see the very real effects of inflation in your life everyday, as everything, from your fast food meal to gas for your car and especially, cars themselves, seem to be constantly going up, up, up! And so when you see, read, or hear a news story on inflation, you know that yes, inflation is all too real today and that it is directly - and negatively - impacting you and your family’s finances!
And yes, in the news business, the old adage of “if it bleeds, it leads!” still holds very true. Shocking headlines make you read and watch the rest of the story. And terrible, distressing economic numbers do get your attention. Today, while crime stories do garner what many would say would be outsized attention in the news business as they fit the media template of “if it bleeds, it leads!”, increasingly, the admittedly scary inflation numbers also reach out and grab our attention (and of course, in doing so, this allows media to earn more advertising revenue by capturing your eyes and ears on their story!). And while in “normal” times, economic data and stories about the economy generally don’t draw nearly the amount of views and clicks of other attention grabbers (like crime stories or the latest celebrity “news”), when people are very concerned about rising prices and see their own pocketbooks “bleeding” because of inflation, well, those stories “sell” very, very well in today's abnormal times. But the question is this: How accurately are today’s inflation numbers being reported?
The Two Caveats
1. The Inflation Fear Factor
Now upfront, I must say two things. First, I am not a media basher - generally. There are plenty of folks out there - people with real authority and credibility - ready and willing to pounce - eagerly pounce - on the mainstream media whenever they make even the slightest mistake. And of course, in the social media age in which we live, there are many, many more “experts,” armed with nothing more than their Twitter account, who delight in constantly bashing TV networks and other major news organizations when they make even the slightest error in their news coverage. This is the first time that I have felt compelled to call out news organizations on how they covered and framed a news story. But it is for a very important reason! As a strategic management consultant and professor, I know that consumer confidence is the key factor today in our consumer-driven economy. And with Americans’ concerns about inflation being extremely high today - with rising prices having an even higher “fear factor” than that of the coronavirus according to recent research (see “Americans More Concerned About Inflation Than Omicron” from CivicScience from which Figures 1 [CivicScience: Americans’ Level of Concern About Inflation] and 2 [CivicScience: Americans’ Level of Concern About the Omicron Variant] below are drawn) - stoking inflation fears helps diminish consumer confidence, making a tenuous economic situation even worse.
Figure 1: CivicScience: Americans’ Level of Concern About Inflation
Source: CivicScience, “Americans More Concerned About Inflation Than Omicron,” November 30, 2021 (Used with permission).
Figure 2: CivicScience: Americans’ Level of Concern About the Omicron Variant
Source: CivicScience, “Americans More Concerned About Inflation Than Omicron,” November 30, 2021 (Used with permission).
2. Americans and Math
The “overhyping” of inflation today intersects with my second serious concern. As we know all too well, Americans are bad at math! Math is a topic that most of us disliked in school, and that dislike carries forward throughout our lives. It’s something that many of us even actively avoid doing (When was the last time you really balanced your checking account?). And most importantly, many Americans simply don't understand math. In fact, there’s a term, innumeracy, analogous to illiteracy, that refers to a person’s “lack of ability to understand and use numbers in calculations.” And so yes, when numbers come up, our eyes often glaze over and our brains turn off. However, when a number is presented in a news story about something they were already highly concerned about - like the current inflation rate - that does get people’s attention! And when the number is presented wrongly - even if unintentionally, how many people out there, the many who might rightly be classified as innumerate themselves and the many others who lack the ability to question the number that they heard, saw, or read, will indeed terribly misinterpret the data point that is presented to them?
Reporting the Most Recent Numbers on Inflation
Such is the case with the recent release of inflation data. You probably saw, heard, or read a story or two (or ten) about what is usually a rather mundane piece of economic news, that being the monthly report from the Bureau of Labor Statistics (BLS) on the movement of the Consumer Price Index (CPI). If you forgot (or slept through) your macroeconomics class in college, Figure 3 (Definition of the Consumer Price Index) provides a refresher on what the CPI represents. As the leading measure of inflation, the CPI is closely watched not just by consumers, but by companies and government policymakers, and so when the monthly CPI report is released, it does generally merit wide coverage in both the business press and in the wider media.
Figure 3: Definition of the Consumer Price Index
However, the most recent release from the BLS on the movement of the Consumer Price Index drew far, far more attention than normal. In fact, it became the leading news story just about everywhere! This is because of one number: 7%. Now 7% annual inflation is admittedly a headline-grabbing, important statistic. In fact, as you can read below in the press release from the Bureau of Labor Statistics with its monthly inflation data for December 2021 (see Figure 4: Bureau of Labor Statistics Consumer Price Index Summary for December 2021), the monthly increase for the CPI was half a percent in December (which was, in fact, a decrease from preceding months). However, the year-over-year inflation from December 2020 to December 2021 was, in fact, 7%, which represented the highest annual inflation seen since 1992!
Figure 4: Bureau of Labor Statistics Consumer Price Index Summary for December 2021
Now there can be no doubt that that historic, 7% annual inflation number is a headline-worthy, top of the news item! And yes, many news organizations did cover it correctly and present the data accurately to their viewers, readers and listeners, as evidenced in how CNBC covered it…
But what got my attention - and concern - was how the CPI data was covered not just by hyperbolic, click-seeking wannabe social media stars reacting to the inflation data…
Rather, the fact of the matter is that major news organizations got the data wrong, or at least presented the CPI numbers in a terribly misleading fashion to their audiences. I became personally aware of this when watching the NBC Nightly News (Yes, I am “of a certain age”…), and the reporting of the new inflation data as their lead story even made me scared! Peter Alexander, the reporter on this story started off his story stating (with a number of hyperbolic adjectives and backed by a red 7% graphic that completely filled the TV screen): “Tonight, the alarming spike in inflation, soaring to its highest level in nearly 40 years, casting a shadow over America’s entire economy. The stunning surge in December, 7%...”:
And so yes, the viewer might rightly come away with the impression that the inflation rate just for the month of December was 7%, not for the past 12 months. NBC was not alone in how it covered - or “miscovered” - the December 2021 CPI numbers, conflating the monthly inflation rate with the year-over-year inflation rate. In fact, Yahoo Finance’s news story on the CPI release was ominously - and inaccurately - headlined: “U.S. Inflation Rose 7% in December, the Fastest Rate Since 1982.” And since we know many of us never read beyond the headlines of a story and dig into the details, and that headline clearly seemed to indicate a 7% monthly rise in inflation!
Now, note the difference between the graphic used in the NBC News report on the inflation numbers from December, shown in Figure 5 (NBC News Graphic on December 2021 CPI Inflation Data) below…
Figure 5: NBC News Graphic on December 2021 CPI Inflation Data
…and the more informative graphic used by ABC News (shown in Figure 6: ABC News Graphic on December 2021 CPI Inflation Data), which clearly presents the difference between the monthly and annualized inflation figures…
Figure 6: ABC News Graphic on December 2021 CPI Inflation Data
…as part of their report on the Consumer Price Index release from the BLS.
Now the point of all of this is in no way to downplay the very real impact that this really unprecedented period of inflation is having on all Americans. Yes, we have been hit by a deadly pandemic, supply chain disruptions, workplace chaos and the “Great Resignation,” and oh yeah, significant political polarization that has morphed into very real societal tension and divisions. And all of these factors have combined to produce inflation that is, by American standards, historically high. But, and this is a big but, the inflation we are seeing today in the United States is not nearly on the level experienced periodically - and sometimes routinely - by countries all around the globe. Take for example Venezuela, which had an inflation rate of 686.4% in 2021! Last year as well, eight African nations had annualized inflation rates in excess of 10%, with 6 of these being more than 20% and one (Sudan) experiencing inflation approaching 400%! And the hyperinflation in post-World War I Germany, which was almost incalculable as money was almost made worthless, led to the rise of Adolf Hitler and laid the groundwork for World War II.
In other words, 7% inflation is bad, but it is not catastrophically, society-changing and endangering bad! And yet, there is a very real danger when an economic indicator of this importance is clearly miscommunicated in the media, especially in today’s media culture, where a news story is not just aired once and viewed by whoever happens to be watching. Today, that story is shared over and over again across social media platforms, and if the information is wrong, the misinformation can spread like wildfire! That is what concerns me greatly, given both my caveats - that Americans’ fear of inflation is at an all-time high AND Americans’ abilities to use their math “skills,” especially analytically, is not at an all-time high - to put it mildly! And so how many people heard these reports of “7% inflation in December” and thought to themselves: “Good God! That means inflation is (punching out 7 x 12 on the calculator app on their iPhones, of course!) going to be 84% for the year!” I’m afraid more than a few of our fellow Americans heard the “7% last month” and thought just that! And what did they do? Hopefully, they searched online and found the truth of the matter that inflation was 7% for the year, not the month. But more than a few likely did something rash - sold all their stocks, ordered a mass quantity of food fearing they couldn’t afford it tomorrow, and yes, bought more guns fearing societal breakdown, and even worse - all based on miscommunicating that inflation number!
And so in the end, this is not the subject of a graduate media criticism or journalism course, and I am not a mass communications prof by any means. However, this is a case study in why it is critical - absolutely critical - for statistical data to be conveyed precisely in the media today, especially when it deals with economic information. People will act based on what they see, hear, and read, and so it is incumbent on journalists to not just strive to be precise, but to be absolutely clear as to how they convey that information to the public. Real people - as consumers, investors, social media participants, and yes, even hoarders and “doomsday preppers” - will act on the information they see in the media - both mainstream and beyond in the “Wild, Wild West” of social media today. They will - and likely have - taken action. And many more, hearing such an alarming - and inaccurately presented - number adds just one more “thing” to their anxiety levels and mental health worries. And so for everyone involved in the mainstream media, they should strive to make damn well clear the difference between a 7% annual rate of inflation and a 7% “spike” in a single month! Money, jobs, even companies may well be at risk by such bad reporting - or at least sloppy presentations and copywriting! The message is simple: Do better!
About David Wyld
David Wyld is a Professor of Strategic Management at Southeastern Louisiana University in Hammond, Louisiana. He is a management consultant, researcher/writer, publisher, executive educator, and experienced expert witness. You can view all of his work at https://authory.com/DavidWyld.
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