Markets
Prices Are Skyrocketing, But Only For Things You Actually Need
Prices Skyrocketing, But Only For Things You Actually Need
Everything else has fallen in price over the years
The Chart of the Week is a weekly Visual Capitalist feature on Fridays.
The way that economic data is presented, we often think of inflation as a singular number representing a general increase in prices.
For example, it might be reported that nominal GDP growth was 3%, and that inflation was 2%. Since the inflation represents a rise in price levels, we subtract it from the nominal rate to get a real GDP growth of 1%.
But in reality, price changes do not affect products and services in such a uniform and simple fashion. In the above example, all goods aren’t increasing in price at a 2% rate – that’s just an average. What really happens is that there is a full spectrum of price changes: some goods end up falling in price, while other goods get more expensive.
What’s Actually Getting More Expensive?
This week’s chart looks at the change in prices of consumer goods since 1996, using data provided by Mark J. Perry of AEI’s Carpe Diem blog.
Here’s his original chart, which is also very telling:
The average price increase, as shown by the CPI (Consumer Price Index), is 55% over the last 20 years. Meanwhile, the prices of individual sub-categories have a much wider variance.
The good news is that the price of technology is generally getting cheaper. Software, TVs, wireless, and new cars have all come down in price relative to the CPI. Clothing, toys, and furniture are also way more affordable than they were 20 years ago.
The bad news? Most of the above items are not the ones that really matter to most of us. The things we actually need to live healthy and fruitful lives – education, food, healthcare, childcare, and housing – are all skyrocketing in cost.
Tuition costs have soared 197%. Textbooks have more than tripled in price, going up 207% since 1996.
Taking care of our loved ones is more expensive. Healthcare and childcare costs have risen almost as much: 105% and 122% respectively.
Meanwhile, basic necessities such as shelter and food have increased at rates higher than the CPI as well. Housing costs are 61% higher and food is 64% more expensive.
Markets
Visualizing the Rise of the U.S. Dollar Since the 19th Century
This animated graphic shows the U.S. dollar, the world’s primary reserve currency, as a share of foreign reserves since 1900.
Creator Program
Visualizing the Rise of the U.S. Dollar Since the 19th Century
As the world’s reserve currency, the U.S. dollar made up 58.4% of foreign reserves held by central banks in 2022, falling near 25-year lows.
Today, emerging countries are slowly decoupling from the greenback, with foreign reserves shifting to currencies like the Chinese yuan.
At the same time, the steep appreciation of the U.S. dollar is leading countries to sell their U.S. foreign reserves to help prop up their currencies, in turn buying currencies such as the Australian and Canadian dollars to help generate higher yields.
The above animated graphic from James Eagle shows the rapid ascent of the U.S. dollar over the last century, and its gradual decline in recent years.
Dollar Dominance: A Brief History
In 1944, the U.S. dollar became the world’s reserve currency under the Bretton Woods Agreement. Over the first half of the century, the U.S. ran budget surpluses while increasing trade and economic ties with war-torn countries, expanding its influence as the world’s store of value.
Later through the 1960s, the U.S. dollar share of global foreign reserves rapidly increased as political allies stockpiled the dollar.
By 2000, dollar dominance hit a peak of 71% of global reserves. With the creation of the European Union a year earlier, countries such as China began increasing the share of euros in reserves. Between 2000 and 2005, the share of the dollar in China’s foreign exchange reserves fell by an estimated 15 percentage points.
The dollar began a long rally after the global financial crisis, which drove central banks to cut their dollar reserves to help bolster their currencies.
Fast-forward to today, and dollar reserves have fallen roughly 13 percentage points from their historical peak.
The State of the World’s Reserve Currency
In 2022, 16% of Russia’s export transactions were in yuan, up from almost nothing before the war. Brazil and Argentina have also begun adopting the Chinese currency for trade or reserve purposes. Still, the U.S. dollar makes up 80% of Brazil’s reserves.
Yet while the U.S. dollar has decreased in share of foreign reserves, it still has an immense influence in the world economy.
The majority of trade is invoiced in the U.S. dollar globally, a trend that has stayed fairly consistent over many decades. Between 1999-2019, 74% of trade in Asia was invoiced in dollars and in the Americas, it made up 96% of all invoicing.
Furthermore, almost 90% of foreign exchange transactions involve the U.S. dollar thanks to its liquidity.
However, countries are increasingly finding alternative options than the dollar. Today, Western businesses have begun settling trade with China in renminbi. Looking further ahead, digital currencies could provide options that don’t include the U.S. dollar.
Even more so, if the U.S. share of global GDP continues to shrink, the shift to a multipolar system could progress over this century.
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