This page is about the consumer price index (CPI). The main question is the current trend in US inflation.
21 May 2013.
The Consumer Price Index for all Urban Consumers, CPI-U, tends to be quite volatile, largely due to the energy component. What is often called ”core inflation,” the CPI-U with food and energy components removed, better shows the trend (see graph). Core inflation hit a low of 0.6% year-over-year in October 2010, and is now running at 1.7%.
High inflation remains a long-term worry, but does not seem to be an imminent danger. Financial repression is likely to continue for now.
21 May 2013. Data through Apr 2013.
All data from the BLS, not seasonally adjusted. (Click on graph for larger image. IE users may want to turn off “automatic image resizing” for a clearer graph.)
US CPI Background (9 Jan 2010) With the CPI, the BLS attempts to answer the question, “What is the cost, at this month’s market prices, of achieving the standard of living actually attained in the base period?”
The main limitation is that CPI measures the cost of life as it was, not life as it is – the cost of quality improvements, such as new safety features in cars, new medical diagnostics, and improvements in computers, is not counted, even when such improvements become the standard.
Two other aspects of the CPI often provoke complaints, but are not problematic if seen in context. The first is the “Less food and energy” version of the CPI, which is often used as a measure of “core”, meaning “essential long-term trend” inflation. While it may appear this is an attempt to ignore the very real cost of energy and food inflation, in fact the change over any ten year period of the “Less food and energy” measure is almost the same as the change in the full CPI. I.e. the two only differ in the short term.
“Owner's equivalent rent” (OER) is the amount of rent a homeowner would pay, if s/he were renting rather than owning. The change in OER is assumed to be the same as the change in the rent of nearby units. The complaint is that OER fails to take into account some of the costs of homeownership. This is true, however the BLS takes the position that the cost of living should only include the cost of shelter, which is covered by OER, and not the cost of speculation in the housing market, which is not. An ideal position, somewhere in the middle, would be difficult to formalize.