Visualizing Information: Taking Apart CPI Inflation

Excellent Sunday morning chart porn in the Business section of today’s NYT, regarding the various components of CPI inflation measures:

click for interactive chart


Each month, the Bureau of Labor Statistics gathers 84,000 prices in about 200 categories — like gasoline, bananas, dresses and garbage collection — to form the Consumer Price Index, one measure of inflation. It’s among the statistics that the Federal Reserve considered when it cut interest rates on Wednesday. The categories are weighted according to an estimate of what the average American spends.


All of Inflation’s Little Parts
Amanda Cox
The New York Times, May 3, 2008

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What's been said:

Discussions found on the web:
  1. Jim Haygood commented on May 4

    Besides taxes, the other glaring omission from the CPI is interest. Yet the Federal Reserve uses the Fed Funds rate as its key policy lever.

    Interest is a cost for corporations; is it not a cost for individuals?

  2. John Borchers commented on May 4

    This would explain low inflation. Where home prices are falling I imagine this would cause rent prices to fall as well as it would be easier to buy a home forcing rental demand down.

  3. John F. commented on May 4

    This is one ugly piece of chart porn–Ron Jeremy comes to mind. Better to use the engine behind Smart Money’s market map, even if there’s a slight loss of accuracy.

  4. AGG commented on May 4

    Prices on items are “WEIGHTED” according to what an “AVERAGE AMERICAN” uses.
    1) What’s an average American?
    2) How many times has the definition of an average American changed in the last 25 years?
    3) Has this change in definition caused the CPI to go up or DOWN?
    4) Does the fact that a realistic CPI would cause increased government expense on TIPS and COLA constitute a conflict of interest? (I have a tremendous capacity for the obvious).
    5) Could you interpret all these fun and games as a massive psyop similar to tape marking or front running on stocks? (DUH).

    This isn’t hard, folks. With computers you can collect MILLIONS of prices on MILLIONS of products every second of every day. Volatility doesn’t exist when too many items are tracked for manipulation to occur.
    House cleaning is in order for the BLS.

  5. fenner commented on May 4

    Fuel oil is .2% of income? Is somebody trying to be funny? We have a small house, we spend 4 grand a year, up from 1500 a few years ago. I don’t care if it’s averaged out across the country. No way it’s anything less than 8% of the income of the average American family. Rubish!

  6. fenner commented on May 4

    By my calculations, if .2% of our income were spent on fuel oil, then we’re making about 8 million a year if we spend 4 grand on fuel oil. Even if only ten percent of the country were purchasing fuel oil, (a ridiculously low figure, I’m sure) then that would mean that the average income was 800,000 per year. Fuel oil is the biggest expense for every homeowner I know, and their biggest financial worry. The average person uses far more than we do.

  7. Jim commented on May 4

    fenner, if $4,000 is 0.2% of your income, then you make only $2 million a year.

    However, I noticed the absurdity of only 0.2% for fuel oil right away. And I live in Hawai‘i!

    Do you think the reason it is so underplayed is that it went up by a greater percentage, 48.4%, than any other item on the chart?

  8. fenner commented on May 4

    you’re right, my math is bad, but still… I have no idea how or why they came to their absurd calculation. I know my salary raises are based on the gov’s phony numbers, that’s all.

  9. AGG commented on May 4

    Some of the many JOKES in the CPI:
    1) Printer ink.
    2) Electricity.
    3) Automobile repairs and maintenance.
    4) Health insurance.
    5) Fresh vegetables.
    6) Garden fertilizer, potting soil, etc
    7) All other grocery store items.
    Chinese pet food anyone? I’m sure that has gone down. Not to mention all those savings since your pet died. Oh, those Vet costs are volatile so ignore them. After all, your pet doesn’t die every day.
    See folks, it’s not hard to get the hang of this if you have a strong stomach and a weak conscience.

  10. AGG commented on May 4

    Somebody needs to say this:
    The BLS is involved in a full blown, in your face, what are you going to do about it conspiracy to cheat all of us. The purpose is to pauperize the majority so that we cannot control wages. The end result is projected to put is into fighting each other for scarce jobs while the conspirators laugh all the way to the bank.

    Pay your debts. Stop borrowing. Drive a bike. Change zoning to allow front yard gardening. Tax the hell out of anyone making more a year than the AVERAGE price of a new home.
    We can squeeze back if we want to folks. Get with it. Powerful people never stop thinking of ways to screw people below them.

  11. JFB commented on May 4

    Fuel oil is only 0.2% because much of the country used natural gas in place of fuel oil. From the chart one can put together a “heating” category by adding fuel oil (0.2%), propane/firewood (0.1%) and piped gas (1.1%). This gives a total of 1.4% for heating.

    Also, in places electricity for A/C is a bigger a expense than heating.

  12. me commented on May 4

    It seems odd to me that they include one time big ticket items like furniture for the index.

  13. Estragon commented on May 4

    Further to the impact of fuel costs on CPI, note that fuel prices inversely affect CPI through OER.

    OER is calculated on “pure” rent, in which the implicit value of utilities is deducted from actual “economic” rents to determine the change in value of housing services consumed by owners. If the utilities component of rents is increasing rapidly, this implicitly reduces OER.

    See figure 6 on page 32 of this report on the calculation of OER, which shows a pretty clear inverse relationship between changes in fuel costs and OER.

  14. Quiddity commented on May 4

    Internet down 0.4% according to those guys. Not where I live (Los Angeles).

  15. Michael Donnelly commented on May 4

    Great Chart. heard something on Bloomberg the other day we used to spend 10% on food and gas now we spend 17% is that possible? I’ll have to look into it

  16. Winston Munn commented on May 4

    Come on, people, this isn’t that hard.

    If you don’t like the price of fuel you can always substitute “sweating” or “freezing your ass off” as conditions warrant, and I’m positive fuel of today has many more additives than older fuel so it must be hedonically adjusted, as well.

    From the hedonically adjusted, substitutional aroma wafting from the riders of the bus last Tuesday, I’m not so sure inflation isn’t being overstated.

  17. Mich(^IXIC1881) commented on May 4

    What software is used to create this chart? anybody?

  18. ScottB commented on May 5

    Come on, folks, check your thinking: if your expenditures are different from the “average”, then the “average” must be wrong?

    The “average” comes from a survey of randomly selected households (some of our friends were in it a year ago) that keep a diary of expenditures over a period of at least a couple of months. That’s what establishes the “market basket” in the graphic. It may not be perfect, but it’s not that bad. And since this is a consumer price index (NOT a cost of living index), taxes and interest aren’t included (they are part of the survey, by the way, you can check it out at

  19. Blissex commented on May 5

    «1) What’s an average American?»

    This is easy — an average (in the sense of median) Usian is someone whose income is stagnant or decreasing, so they spend the same or less each year, trading down all the time and thus keeping prices down.

    «2) How many times has the definition of an average American changed in the last 25 years?»

    The overall definition has not changed in 25 years, as the average (in the sense of median) Usian income has been stagnant or decreasing since Reagan. The definition of the basket of things consume by the average Usian has changed many times to reflect the trading down this has engendered, keeping the index realistically low.

    «3) Has this change in definition caused the CPI to go up or DOWN?»

    Well, always in the sense of making it lower than it would have otherwise been.

    The CPI does not measure a standard of living, it measures the cost of living for some Usian with stagnating or decreasing income. So if the average Usian has a constant income but steak prices go up, there is no inflation, because she will buy less steak and more beans, and her cost of living will stay constant.

    This means that in practice the CPI, and especially the CPI without oil and food prices, is a proxy for the average Usian income, and keeping down the CPI means keeping down wage increases.

  20. Sajal commented on May 5

    Hey Barry,

    I seriously worry that we could have a black swan event in food and commodity prices, further exacerbated by political expediency. There are elections in India next year, and the political posturing has begun. Deficit is high, inflation is out of control, futures trading on food staples has been banned, fuel subsidies are distorting fuel usage, exporters are demanding tax incentives, sops or government intervention in keeping the rupee pegged to the dollar. The list goes on . The news from China isn’t getting any better. Increasing emerging markets trade protectionism could undo the WTO trade benefits, further throwing a spanner in the Doha round of negotiations.

    (from my blog post).


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