I’ve been saying this for some time but it’s always nice to see the scales drop from the eyes of others. At FT Alphaville Matthew Klein has noticed that 80% of all of the price increases over the period of the last 25 years have been concentrated in just four sectors (really just three): healthcare services, housing, education, and prescription drugs:
In January 1990, those four product categories only accounted for 30 per cent of the money spent on consumption by the average American. (Housing was about half that.) Even after more than a quarter-century in which prices of these goods and services rose significantly faster than everything else, these four sectors still account for less than 40 per cent of total consumer spending.
Put another way, the Federal Reserve would have completely failed at both of its economic objectives had it not been for the dramatic expansion of a handful of low-productivity sectors.
Here’s my point. Regardless of the label they put on the graph reproduced above that’s not how inflation works. It doesn’t magically land on just a few sectors.
That’s monopoly power.
Government subsidized monopolies with a promise of ever increasing subsidies.
The hardest case to make is housing until you take zoning and regulation of the cost of money into account.