Inflation seems under control…as long as you don’t need to buy food or fuel

by 1389 on October 11, 2012

in 1389 (blog admin), Barack Hussein Obama, cars, trucks, and roads, energy, food and drink, inflation

Exxon station sign: Just kidding - those were our prices the day Obama took office

Bankrate.com: Is inflation higher than you think?

If you’ve noticed your wallet seems a little lighter after a trip to the grocery store or gas station, you’re not imagining things.

Here and around the world, the prices of everything from cotton to coffee have risen. The Department of Agriculture forecast for food costs in 2011 calls for an increase of 3 percent to 4 percent. And, the price of fuel is up — a lot.

Yet, the government’s measure of inflation, the Consumer Price Index, barely registers an increase in the prices consumers are paying. Economists don’t expect an inflation increase of more than 1.5 percent this year, “even if food goes up 3 percent and energy goes up 10 percent,” says Bill Hampel, chief economist for the Credit Union National Association.

What gives? Don’t food and fuel prices count in the tabulation of the index? Not really.

To measure the cost of living for consumers and come up with the Consumer Price Index, the Bureau of Labor Statistics prices everything consumers spend money on. Then all of the expenditures are categorized and weighted based on the amount that the average consumer spends on those categories. The percentage change from month to month is the rate of inflation, and it’s usually expressed as an annualized number.

The all-items inflation rate represents everything people spend money on: haircuts, plane tickets, medical care, clothes — you name it. But, that number is puffed up by the pesky necessities — food and energy. So those two categories are discarded when calculating the core inflation rate.

Theoretically, the core inflation rate more accurately reflects the increase in costs without factoring in the capricious nature of weather and political winds that impact food and fuel costs.

“Food and energy prices are quite random,” says Hampel. “Usually our best guess of inflation going forward for the next few months is anchored at the core rate.”

Nevertheless, food and energy prices have increased at a much quicker pace than core items. Food prices increased at nearly twice the rate of core inflation over the past year, rising 1.8 percent compared to the core inflation rate of 1 percent for the year ending in January.

But that’s nothing compared to fuel costs. “The big culprit has been energy prices, which are up 7.3 percent” over the same time frame, says Hampel.
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More here.

Obviously, the less prosperous you are, the more of your hard-earned income goes toward the necessities: food, home heating, and getting to and from work. So for America’s growing underclass of part-time and underemployed workers who can least afford it, this inflation hits disproportionately hard.


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