Tuesday, June 17, 2014

Having fun with the CPI. I show how you can read this report quickly and actually get something out of it!

Looking at a government report can be overwhelming.  SO MANY numbers and categories!  In this blog posting I would like to offer a simple way of breaking down a report and getting something useful out of it.

The latest measure of consumer prices is out today (June 17th, 2014).  While we have a relatively low level of over-all inflation, not all parts of the market basket that the government uses to measure prices necessarily reflect it. Some prices have increased, some decreased and some stayed the same.

Here is a simple exercise I do when this report comes out.

I look at the how prices have changed over the past year.  Below is the first page of the whole report and it starts with "Food", my favorite subject.  Focus on the highlighted column in YELLOW.  This shows how the price of food has changed, in percentage terms, over the past 12 months.

The first line shows that "All Items" as measured the CPI have increased 2.1% in the last 12 months.  Food as a category has increased 2.5%.  From this we can conclude the price of food as a category has increased slightly faster than all the other items in the CPI market basket.  Now we can dig deeper.

Food as a category has two components:  "Food at Home" and "Food away from Home".  I only screen shot "Food at Home" to use for this but you can find the other category in the whole report.

Food at Home has increased 2.7%.  This is 29% higher than prices over-all (2.1%).

Now the fun part.  Use 2.7% as your baseline and compare it to all the other "Food at Home" prices. If the percentage number you see is below 2.7% than that category has risen slower than all items of food at home OR it has actually decreased in over the past year (see negative numbers).

If the number is above 2.7% then the prices of that category of food at home have increased faster than the category as a whole.

What do you see?  What has increased faster than the average? Slower?  Actually decreased in price?  WHY????  So many opportunities to tie in basic econ principles with current events.

Have fun!

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