Inflation is messy (radio preview)

The radio audience is concerned with inflation, and rightly so. It is a big deal and it carries serious consequences with it. While most news coverages discusses the issue of inflation expectations coming unanchored there is a more practical concern happening at the consumer level: the relative costs are changing and making budget calculations more difficult.

We have not seen this type of inflation in decades and the consumer is looking for ways to manage the idea that some prices are increasing by more than others. This is a practical problem seemingly less noticed in the media coverage right now. The focus on gas prices is important and the general recognition that paychecks do not buy what they did before is correct, but shifting price markers is difficult to manage too.

So at the time this is going on, should we be celebrating record tax collections? That is a tougher call, but I lean towards a clear no if you want to complain about, or listen to constituent complaints about, inflation. If we remove the effects of inflation (making the most recent observation the base period) we find out that it is not even the record. First, let’s look at the messiness since 2010.

I’ve shown these types of plots before and I think season plots can be quite effective. The two takeaways here are that there seems to be a general increase in real tax collection values in the middle of the year and that it seems like the real value does increase over time. So it is fine to say that even after controlling for inflation there is a general increase in tax collections, which can be a measure of economic health (under certain conditions), but it is not the highest.

The highest value for real Grand Forks sales tax collections comes in August 2019. This is clearer when we look at the next graph. I also include the mean value for those tax collections since 2010. With the mean line included in the graph you can clearly see that the recent values are more likely to be higher than some of the earlier values.

Inflation is a tax on individuals with cash holdings (and others too like fixed incomes). The fact is that as we move on with higher inflation it continues to push more people into a situation where they struggle to make ends meet. This includes local people which seems to be forgotten when we talk about record tax collections.

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