March 18, 2011
by dshort.com
My monthly update Inside the Consumer Price Index identifies the components of the Consumer Price Index, documents their relative weights, and uses line charts to show the cumulative percentage change of each since 2000.
In this post I'm using a bar chart to illustrate the relative change over the same time frame. The table below documents the current weights assigned by the Bureau of Labor Statistics (BLS) to the eight components of CPI. I've also included the weights of the two aggregate categories ā Food (ex alcoholic beverages) and Energy ā that are excluded from CPI to determine the Core CPI. (Note: CPI is sometimes referred to as "Headline CPI" to distinguish it from the Core variety.)
The bar chart below shows the relative change for each component and the two special aggregates. I've also added College Tuition & Fees, a subcomponent of Education and Communication, because of its significant impact on households with college expenses. Incidentally, the BLS assigns a mere 1.5% weight to this subcomponent of CPI. But for households planning for college expenses, the impact of inflation is dramatic.
Click for a larger image
The Inflation Controversy
The table and chart above help to explain why inflation is such a controversial topic. If your household mirrors the expense ratios of the CPI weightings, then the monthly CPI reports may seem reasonably accurate. However, households on tight budgets will be highly sensitive to the more volatile components of CPI ā food and especially energy expenses. Also, for households with greater exposures to energy costs (especially gasoline), medical expenses, or college bills than the BLS weightings, the CPI data will definitely understate your experience.
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