Avocado Index Shows Millennials Hardest Hit In Inflation-Per-Generation Measure.
Different generations have different spending patterns. For example, millennials are alleged eat more avocados than baby boomers. If avocados were to become more expensive (avocado price inflation), then millennials would be more affected by this inflation than other generations.
Inflation, measured through the Consumer Price Index (CPI), has traditionally been measured for the whole population. But this measure does not take into account inter-generational differences in spending patterns. In this article, I create a generational price index, showing how current inflation affects different generations. I show that over the last five years, the “Avocado Index” tracking millennial inflation has increased more than the Generation X or baby boomer price indexes.
Spending Per Generation and Inflation Data
To create a historical price index per generation, we need two things. We need to know what goods different generations spend their money on, and we need to know what the price change (inflation) has been for those goods.
The U.S. Bureau of Labor Statistics has documented the spending behavior of millennials, Generation X, and baby boomers in their Consumer Expenditure Surveys. For example, their data show (unsurprisingly) that millennials spend relatively more on rent and boomers spend relatively more on healthcare.
The U.S. Federal Reserve Economic Data (FRED) lists price inflation for different goods and services. The following chart shows inflation per selected category since 2013:
Generational Price Index
We know what goods and services each generation spends their money on, and we know the price inflation for these goods. This allows us to create a consumer price index for each generation separately. The following chart shows inflation over the past 5 years for millennials (Avocado Index), Generation X, and baby boomers.
Over the past five years, millennials have seen their goods become 8.7% more expensive, Generation X 8%, and baby boomers 7.6%. This means that the price increase for millennials was 14% higher than for baby boomers.
Millennials spend relatively more on housing (through purchase or rent) than baby boomers. Housing has seen relatively high inflation over the past five years, which partially explains why inflation has been higher for millennials. The wealth divide between relatively poor millennials and wealthy baby boomers is further exacerbated by the fact that millennials generally pay their high housing costs to baby boomers. Millennial couples living together in one household may be the outcome of housing that is becoming too expensive.
While more people than ever are getting a higher education and making use of limited funding, governments have not increased education funding. In addition, the cost of higher education has increased sharply and student debt has exploded.
Longer-term Inflation Per Generation
If we look at CPI since 2000, we see that different generations are actually very similarly affected by inflation. The avocado index has risen just 1% more in the past 18 years than the boomer price index, and 2.4% more than the Generation X price index. These differences are very small over the course of 18 years, much smaller than the 14% difference we saw in the past 5 years. This suggests that different generational price inflation measures converge over time.
What are your thoughts on the inflation-per-generation measure? Leave a comment below!