Airline tickets are dirt cheap, masks and test kits are super-expensive (have to marry a Prime Minister or qualify for the Utah Jazz), and demand is collapsing for commodities. Gas should be cheaper too. A museum visit soon may be infinite in price.
So what will the new overall rate of price inflation be? What is the quality-adjusted value of “buy a new Toyota plus ??? chance of coronavirus from the floor visit”?
What is the new quality-adjusted value of health care? It is (one hopes) more likely to save your life, but ?? percent of the staff are carriers themselves.
The new quality-adjusted value of on-line higher education?
How should we think about your rent payment, given how many of the urban amenities are shutting down? Has living next door to a park and walking trails suddenly escalated in value?
And a lot of the goods out there — if you can buy them — are option values. I don’t need more toilet paper, but I would pay a few dollars for the continued right to keep on buying toilet paper, which usually I take for granted. Our stocks of various commodities vary in value much more than they used to — now I treasure those Goya small red beans in the basement.
Is it still meaningful to just take the old price basket averages? Somehow I don’t think so.
If there is no well-defined rate of price inflation (finally Scott Sumner wins on that one), can there be a well-defined real interest rate? Is it very high or very low? Or just “a high variance real interest rate”? Or is the nominal interest rate the new real interest rate?
Was the nominal interest rate all along the interest rate that mattered and made sense?
Is any of this built into the macro models people are applying to this crisis? No.