Sat, August 15, 2009
Consumer Price Index Suggests Inflection Point
Yesterday the Bureau of Labor Standards provided a CPI update through July 2009. Prices seem to be firming, but no clear pattern has yet emerged.
Nationally, consumer prices are down 2.1% versus last year. In recent months, prices have been increasing, but the annualized data are still dominated by the large price declines experienced in 2008. Boston-area prices were down 3.4% vs. July 2008, with much of the decline due to sharp decreases in energy costs.
The Consumer Price Index reflects changes in the cost of about 80,000 goods and services purchased by urban consumers. The index consists of a “market basket” composed of
| Food and beverages | 16% |
| Shelter | 33% |
| Fuel and utilities | 5% |
| Household furnishings | 5% |
| Apparel | 4% |
| Transportation | 15% |
| Medical care | 6% |
| Recreation | 6% |
| Education and communication | 6% |
| Other | 4% |
| Source: Bureau of Labor Standards | |
The cost of “shelter” is calculated using a complex method known as “rental equivalence,” rather then directly by the cost of housing. Since 1983, housing prices have not been directly reflected in the index because economists consider owner-occupied housing to be a combination of consumption and investment, and the CPI is intended to reflect consumption.
Overall, the direction of inflation remains somewhat obscured by changes in oil and natural gas costs, but “core inflation,” which excludes energy and food, has been rising slightly.
