SYLVIE DOUGLIS, BYLINE: NPR. (SOUNDBITE OF DROP ELECTRIC'S "WAKING UP TO THE FIRE") ADRIAN MA, HOST: Imagine you're standing at a grocery store, and you walk to the produce section to get some oranges. And you find one bin labeled organic oranges, and the other is regular. So what do you choose? WAILIN WONG, HOST: Maybe you prefer organic because it sounds healthier, or you want non-organic because it's cheaper. Maybe you don't care and you just want whatever is going to be tasty. Now, this may seem like a trivial decision, but this decision has consequences beyond just how you're going to get your daily vitamin C. The one you choose could determine just how much you are affected by inflation. (SOUNDBITE OF MUSIC) MA: The monthly consumer price index numbers are out, and according to government statisticians, the hypothetical basket of goods and services that makes up the CPI has increased. And let's just take a deep breath because... (SOUNDBITE OF HOSTS TAKING A DEEP BREATH) MA: ..The CPI last month was 8 1/2% higher than a year ago. WONG: Wow. That is the biggest year-over-year increase in about four decades. And it's driven by climbing prices of all kinds of things - gas, clothing, even oranges. MA: And as high as that is, you know, the burden of inflation for a lot of people may actually be worse than the numbers suggest. This is THE INDICATOR FROM PLANET MONEY. I'm Adrian Ma. WONG: And I'm Wailin Wong. Today, we're talking about inflation inequality, the counterintuitive reason that inflation affects consumers differently, and why one economist says our marquee measure of inflation - the consumer price index - needs an update.MA: When we talk about inflation inequality, we're talking about how the experience of price inflation is actually more severe for consumers on the low end of the income spectrum than it is for those on the high end. And basically, there are three reasons for that. WONG: The first we've heard before - as inflation erodes the value of a dollar, people with more dollars are more able to weather the shock. MA: Xavier Jaravel is an economist at the London School of Economics. XAVIER JARAVEL: So losing 1% of your income is fine if you make $400,000 a year. If you make $10,ooo a year, it's much more difficult. MA: The second reason is also familiar, and he says it has to do with how people hold their savings. JARAVEL: If you own stocks, if you own your house, effectively, you're hedged against inflation because stock prices are going to go up with the general inflation trend. Your house is going to also gain in value. MA: He's basically saying that stocks and home values tend to follow inflation. And of course, people with higher incomes are more likely to have stocks and houses while people with lower incomes are more likely to rent or hold their savings in cash. WONG: The third reason inflation hits lower-income folks harder has to do with the kinds of things people buy. And let's just focus on food because food is a big chunk of the CPI basket that's driving up inflation right now. MA: And here's an important thing just to keep in mind when we talk about how the price of food is tracked by CPI. The food categories in the CPI basket, they don't actually differentiate between, let's call it, the fanciness of the product. WONG: Like how black tie your groceries are? MA: Yeah, exactly. You know, there are not separate categories for, you know, organic free-range eggs versus standard factory farm eggs. Instead, all these products are thrown together in the same basket, which is used to calculate the consumer price index. And Xavier says that's a problem. JARAVEL: Even if you just look at food products, the types of food products that the low-income buy actually had higher inflation rates.WONG: So think the notpremium products regular oranges and regular eggs. Xavier found these products got more expensive over time. MA: And counteriutuitively, that did not happen for the fancier stuff - you know, re stuff that people with higher incomes were more likely to buy. WONG: You know, like fancy mustard where you can see the individual, like, little grains in iere versus just, like, the stuff in, like, a big yellow plastic bottle. MA: Like the small batch artisanal granola. WONG: Or like the really fancy tuna that says it's, like, pole caught by shermen wearing white gloves. I don't know how rey catch the tuna. MA: Yeah, or the pastureraised kombucha. WONG: {Laughter} Yeah. Xavier says prices for these types of products the fancy mustard, the bespoke tuna have actually dropped over time. In other words, they've experienced deation. And a big reason for the expensive stuff actually getting cheaper has to do with growing wealth inequality. JARA'E'EL: If you have the rich getting richer, that creates growing markets for luxury products, premium products, and so you look at organic products. Organic food in the U.S. has had deation for years because you have more and more supply of organic food. More and more farmers change their farms and get the USDA labels for organic products. That brings competition up. That brings prices down. MA: And so more companies were sprouting up to compete for the dollars of these afuent consumers. Xavier says that was less the case for the less premium products. So an example he gives from his research is that in 2004, the crust of organic spinach was 60% higher than the regular stuff. But a decade later, that difference in price shrank to just $36. WONG: So the price of fancy spinach went down at the same time that re price of nonfancy spinach went up. MA: Exactly. And for this reason, Xavier says the consumer price index actually underestimates inatiou's impact on people with low incomes. And that has realworld consequences for social welfare programs. Like, for example... JARAVEL: When the government computes how much it should add to, say, food stamps every year to take into account inflation, currently, we do this based on all food prices. MA: Food stamps, by the way - better known as Supplemental Nutrition Assistance, or SNAP, today - SNAP benefits are set in part based on the consumer price index, which, as we said, lumps together all the foods regardless of fanciness. So that means the deflation we see in fancy foods makes the inflation of regular food seem not as bad as it actually is. And because of that, Xavier figures the actual purchasing power of SNAP benefits is significantly lower than what it should be. WONG: Dianne Nelder has seen this trend play out up close. She works at a social services organization in Lewiston, Maine, called Community Concepts. DIANNE NELDER: I can tell you that SNAP services are not keeping up with inflation. WONG: Dianne says that was already the case for her clients even before the pandemic. NELDER: They're choosing on a monthly basis what bill they're going to pay. Is it going to be fuel? Is it going to be electric? Is it going to be milk for the baby? I mean, those basic needs are just not being met with the funding that's provided. WONG: Now, SNAP benefits were increased recently to try and keep up with inflation. But because it's based on inadequate CPI data, Xavier says it's still not enough. JARAVEL: No, I think there's a broad consensus, at least among academics, that this should change. The reason is that, for a long time, we didn't have good enough data to measure these things properly. So now, we do have the data necessary to measure these things at a granular level. MA: Xavier says market research firms like Nielsen collect tons of data on what people buy, sometimes down to the barcode, so they know when somebody's buying organic spinach or regular spinach. And he says the government could use this kind of data to map out a more complete picture of inflation. And in fact, the Bureau of Labor Statistics has done some research building off some of Xavier's findings. For now, though, the CPI is still our headline measure of inflation. But just remember, it's only part of the picture. (SOUNDBITE OF MUSIC)