Raising corporate taxes would make inflation worse
What is President Biden’s plan to beat inflation? He tweeted out last week: This was the first time I have encountered the idea that high rates of inflation can be…
Inflation is running at its fastest rate, year over year, since June 1982. Generally, people see this in the form of rising prices. But that is only part of the story, as the sad tale of the Domino’s carryout deal illustrates.
Fox 9 reports:
Domino’s recently announced changes to one of its popular menu options. While the chain is known primarily for pizza, it also offers a variety of chicken wing options to its customers.
According to a recent announcement, however, customers are going to start getting less wings.
At the 2022 ICR Conference, Domino’s CEO Ritch Allison explained that several changes will be coming to the Domino’s menu, Nation’s Restaurant News reports. He stated that the chain’s $7.99 carryout deal will now only include eight wings.
Allison explained that commodity costs and inflation are responsible for the reduction in wings. The move is reportedly being made in anticipation of increases in both the cost of food and wages.
So, since your carryout will still cost $7.99, that means no inflation, right?
Wrong. Previously, you were getting 10 wings in your carryout for $7.99 which worked out at 80 cents per wing. Now, when you are only getting eight wings in your carryout for the same nominal price, you are paying $1.00 per wing: that is a hefty price increase of 25 percent per wing.
What this shows is that inflation does not simply manifest itself in paying a higher nominal amount for the same quantity of stuff, but can also manifest in paying the same nominal amount for a smaller quantity of stuff. Even worse, in this situation it isn’t clear that official figures do a great job of picking up this type of inflation.
Either way, this is yet another illustration of the key point: for economic welfare, it is the real that matters, not the nominal.
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Christopher Phelan is currently a professor of economics at the University of Minnesota, and an advisor to the Research Department at the Federal Reserve Bank of Minneapolis. He has served in various capacities with the Federal Reserve Bank of Minneapolis since 1998, and has taught economics at Northwestern University and the University of Wisconsin–Madison.
Disclaimer: The views expressed in this online discussion by Professor Phelan are his alone and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System
John Phelan is an Economist at Center of the American Experiment, and a graduate of Birkbeck College, University of London, where he earned a BSc in Economics, and of the London School of Economics where he earned an MSc.
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