Lesson 4-5: Hidden Inflation and Rule of 72
Attempt: 5
Hidden Inflation
Hidden inflation can occur when the costs of everyday necessities such as food, gas, and health care increases more than other nonessential items. These necessities represent a person’s greatest percentage of expenditures. This inflation is “hidden” because the CPI is not weighted to reflect the frequency in which each item is actually purchased, but instead each item gets “equal representation” in the calculation. For example, you would input a single gallon of gas and not all the gas you need for a year – let alone a full tank.
Hidden inflation can also occur when the product quality or quantity declines despite no decrease in price.
o A bag of chips going from 16 to 14 ounces
o A bottle of juice going from 64 to 59 fluid ounces
o Toilet paper going from 4.5 to 4.1 inches wide