Is That Inflation?

Growing up, I learned that “prices went up” is one of those phrases people use the way they use “The dog ate my homework.”  That’s a catch-all excuse that explains everything and therefore explains nothing.  It’s a little like saying, “History happened.” 

But if you listen to the public conversation long enough, you’ll notice that we jam at least three different ideas into that one phrase:

• A plain old price increase (the thing you buy got more expensive),
• A relative price change (the thing you buy got more expensive compared with other things), and
• Systemic inflation (damn near everything went up).

And because we treat these as interchangeable, we end up arguing past each other like two professors who are debating whether Plato would have liked TikTok.  (He would not.  He’d have published a dialogue about it and then banned it.)

So, let’s untangle this, and do it with enough humor to keep your blood pressure below “breaking news.”

“Prices Went Up”: The Great American Catch-All.  When someone says, “Prices are up,” they might mean one price is up.  Like eggs.  Or gasoline.  Or the kind of coffee beans that now require a co-signer.  That’s a price increase—often caused by something specific: drought, war, shipping snarls, avian flu, or a mysterious shortage of whatever it is my grandson collects.

A price increase is usually local to a product, or a small set of products, and it often has an identifiable, concrete cause.  The price rose because something got scarcer, or demand surged, or a regulator woke up feeling ambitious, or some jackass in California discovered that if you ate a half-ton of it within a single week it caused cancer.   In other words: a price increase is a micro story.  It’s just about that thing.

This is different from inflation, which is the macro story.  Inflation is when the overall purchasing power of money declines, and a broad swath of prices rise—goods, services, and finally and a little later, wages.

So, the first key distinction is:

• Price increase: “This thing costs more.”
• Inflation: “Money buys less across the economy, and it keeps doing that for a while.”

If you want a quick gut-check:  if only a few items are spiking, you’re likely looking at price increases and relative price changes.  If everything is creeping up, and it won’t stop creeping, you might be dealing with systemic inflation.

Relative Prices: The Ratio That Ruins Your Dinner Plans.  Now let’s talk about relative price changes, which are the economic equivalent of your neighbor buying a new pickup: the problem isn’t the truck; it’s what it does to the neighborhood pecking order.

A relative price is the price of one thing compared to other things.  Economists love ratios because ratios don’t care about your feelings.  So, when we say “beef got expensive,” what we often mean in practice is: beef got expensive relative to chicken.  Suddenly chicken starts looking more attractive, and beef starts looking like something you buy only on anniversaries, funerals, and when your brother-in-law is trying to impress someone.

Relative price changes are important because they change behavior.  People substitute:

·      Chicken for beef,

·      Store-brand for name-brand,

·      “Maybe we don’t need a new bigger iPad” for “fine, I’ll just keep squinting.”

This is not “inflation” in the big, systemic sense.  It’s the economy doing what it does: rearranging who buys what, and at what price.  The prices of goods relative to other goods are constantly changing.  It might be disconcerting, but it is normal.

Episodic Price Increases: The Price Spike With a Plot Twist.  Now we add a wrinkle: episodic price increases.  “Episodic” isn’t about whether something is expensive compared to other things.  It’s about the shape over time.  An episodic price increase looks like this:

·      A spike,

·      A surge,

·      A brief moment of panic,

·      Then a leveling off, and sometimes a partial retreat.

Think gasoline after a refinery outage.  Think eggs during an avian flu wave.  Think airfare around the holidays when airlines decide to test the outer limits of human patience.

So: Episodic price increase is a description of timing (“it jumped in a burst”).  Relative price change is a description of comparison (“it rose compared to other prices”).  These can overlap, but they don’t have to.  You can have an episodic spike that changes relative prices, or you can have a broader inflation flare where lots of prices rise together, leaving relative prices mostly unchanged.

Inflation: When the Whole Price Level Decides to Get Ideas.  Now we get to the big evil one: systemic inflation.  Inflation isn’t just “prices are higher.”  It’s persistent, broad-based increases in the general price level.  A classic feature of systemic inflation is that it tends to show up across many categories:

·      Goods,

·      Services,

·      Housing costs,

·      And anything else that makes you ask, “Is that what I used to pay?”

Inflation often involves feedback loops:  Businesses raise prices because costs are rising and they expect others to raise prices, and then, workers ask for higher wages because the cost of living is up, and next, higher wages push up costs for labor-intensive services, till finally, prices rise again restarting the entire cycle.

That’s not a single product’s story…that’s a whole economy’s story.  And here’s the part people forget: inflation is a rate, not a level.  If prices jump once and then stabilize, you can end up with high prices, but with low inflation (it’s expensive, but it’s not getting more expensive every few weeks).

This is why you can hear someone say, “Inflation is down!” and hear someone else shout, “Then why is everything still so expensive?!” and both can be right.  The first person is talking about the rate of price increase.  The second is staring at the new, higher level of prices like it personally insulted their retirement plan.

Tariffs: The Political Version of “Hold My Beer”.   Now to the big question:  If prices increase because of tariffs, is that not inflation?  The most honest answer is, “usually not”, at least not by definition—but a tariff can contribute, depending on how it plays out.  A tariff is a policy that raises the cost of imported goods (and sometimes key inputs), which often raises the prices of:

·      The tariffed imported items,

·      Domestic substitutes because producers can now charge more,

·      And downstream products that use those imports as inputs.

That’s first and foremost a relative price change:  the tariffed goods become more expensive relative to other goods.  It can also be a one-time increase in the overall price level if it hits a meaningful chunk of the consumer basket.  But here’s the key:  a one-time increase in the price level is not automatically a self-sustaining inflation process.  Whether it becomes “systemic inflation” depends on breadth, persistence, and reinforcement.

Tariffs look more like “a price shock” when:

·      The tariff is narrow (a few products)

·      People can substitute away easily

·      Firms absorb some of the cost by lowering margins

·      The central bank doesn’t “accommodate” it by letting overall demand run hot

·      Wages and broad pricing expectations don’t spiral

That scenario gives you:  “These things got pricier.”  Annoying.  Very real.  But not necessarily systemic inflation.

Tariffs can feed inflation when:  They’re broad and large, they hit key inputs across industries, they raise costs for lots of businesses at once, businesses start raising prices more generally “because everybody is,” and workers bargain for higher wages to keep up.  At that point, tariffs can become part of a broader inflation story, not because tariffs are “inflation,” but because they can act like a cost shock that spreads and gets reinforced.

So, the best way to say it is: Tariffs are not “inflation” by definition.  They are a policy-driven cost shock and a relative-price change.  But they can show up in inflation measures, and in some conditions, they can contribute to inflation persistence.

Perhaps an example would help.  If America imported all the widgets needed for manufacturing and every industry used them, a tariff on widgets would be inflationary.  But, if manufacturers could substitute American made flanges for imported widgets, or it spurs domestic production of widgets at a competitive price, this is not inflationary as the cost of production is only temporarily increased.

This is all very confusing, so let’s put that into A Field Guide for Normal People.

If you want to decide what you’re looking at in real life, try this:

Is it broad?  If only a few categories are jumping, it’s likely price increases and relative price changes.  If lots of categories are rising, especially services, inflation is more likely.

Is it persistent?  If it spikes and then settles, think episodic.  If it keeps rolling month after month, think systemic.

Are wages chasing it?  Broad inflation often involves wages rising too (even if they lag).  A narrow price shock often doesn’t.

Can you substitute away?  If you can dodge the pain by switching products, it’s often a relative-price story.  If everything you switch to is also climbing, you’re in inflation territory.

Conclusion: Words Matter, Because Wallets Matter.  So, yes, “prices went up” is true in the same way “water is wet” is true.  But if we want to be precise (and occasionally sane), we should ask:

·      Is this a price increase in a particular market?

·      Is it a relative price change changing what people buy?

·      Is it an episodic spike tied to a specific shock?

·      Or is it systemic inflation, where the general price level rises broadly and persistently?

And if the culprit is tariffs, we can say that tariffs typically create relative price changes and often a one-time bump in some prices, and sometimes in the overall price level.  Whether that becomes systemic inflation depends on whether it spreads, sticks, and gets reinforced by expectations, wage dynamics, and overall demand.

In other words, tariffs are not automatically inflationary—they’re more like the economic equivalent of tossing a wrench into the machine and then acting surprised when the machine makes a new noise.

Which, come to think of it, describes a lot of public policy.