Wednesday, January 15, 2014

Having fun with the Consumer Price Index. Can you spot the goods produced domestically? Internationally? Good times!

Economist Tim Taylor posted this chart on his blog.  It shows how prices, as calculated by the Bureau of Labor Statistics (BLS) through the compilation of the Consumer Price Index (CPI), have changed over time

The BLS calculates the CPI by surveying a "basket of goods and services" that a typical consumer might purchase on a daily, weekly, monthly or yearly basis.  They then determine a Price Index that results in number in base 100 form. The base year CPI is always 100. If in a subsequent period the Index is different from the base year Index then we can say the price level has increased or decreased.  This gives us some measure of inflation or deflation in the economy.

Currently the BLS uses the time period of 1982 to 1984 as the base year for the index for most of the goods and services in "the basket".

So, using 100 as our base we can see how the prices of various goods and services have change over time.

For instance, the category of "College Tuition and Fees"  has a current price index of 706.  This means that it is 606 index points higher than it was in its base year of 100.  We can infer from this that the price of college and it various fees has increased by 606% since the 1982-84 time period.

Every Index number you see that is OVER 100 means the prices of those things have increased over time. Every one under 100 means the prices of those things have DECREASED over time.  To find the percentage change just take the Index number you see in the chart and subtract 100.

Observation:  There are many things going on here and Professor Taylor writes of several.  I would like to add one more that he did not.  Look at the items at the bottom of the list.  Notice Toys and Televisions have actually DECREASED in price A LOT.  Durable Goods (cars, wash machines, etc) and Apparel have increase only marginally since 1982-84.  I see the effect of globalization on the bottom few categories. Production of those items have increasingly moved to low(er) cost production countries.  The categories as you move to the top are goods or services that are not easily, if at all, mobile in terms of where they can be produced.

Here is the link to the most current Consumer Price Index.  Go to it and see if there are other goods or services that conform to my observation (or not).  Really, go do it. IT IS FUN!!
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