The Ssgments and Measures of Inflation
Unfortunately, the unjustified and illegal invasion of Ukraine by Russia and the necessary isolation and sanctions on Russia have caused limited fossil fuel resources, and resulting inflation. This will be compounded by a world food crises and inflation from blocking Ukraine crops and fertilizer, which is totally Russia’s fault as it blocks Ukrainian ports. In the US, oil companies have failed to reopen refineries shut down the last years due to a transportation slowdown from Covid. As the last articles show, they are price gouging causing severe fuel inflation. There have also been supply chain interruptions, some caused by the pandemic, including computer chips. This is in cars and electronics.
Here, we present current data on inflation in the various consumption categories, and in different inflation indices.
We have used the article: “How Does the Government Measure Inflation” by the Brookings Institute Hutchins Center by Nasiha Salwati and David Wessel, from a year ago, but updated much of it to today.
The Consumer Price Index
This is evaluated by the Bureau of Labor Statistics here. It adds up costs to urban residents, which represent 93% of Americans. The graphic shows the current category breakdown of the Consumer Price Index.
The Federal Reserve uses the PCE Personal Consumption Expenditures Price Index (PCEPI) on household expenditures, as gathered by businesses. This is the comparison of the segments of both from 2021, in the Brookings report. The PCE includes “chaining” or the switching of choices in a category to save money. We note that Transportation, the most inflating sector, was 15.7% in the CPI, but only 9..8% in the PCE. Transportation is now 18.2% in the CPI.
In May, 2022, the CPI segments increases over the month of May a year ago were: All 8.6%; Energy 34.6%; Food 10.1%; and Excluding Those 6.0%. The part excluding the more fluctuating parts of Energy and Food is called Core Inflation. In the Energy segment, the main inflation contributions are: Gasoline 48.7%; Electricity 12.0%; Natural Gas 30.2%; and Airline Fares 37.8%.
The CPI for the location of Los Angeles, Long Beach, and Anaheim has a total index of 301.960 this May, and subtracting 279.139 from last year’s May, gives a difference of 22.821, or an increase of 8.2% from last May. This is comparable to the 8.6% CPI nationally.
The Personal Consumption Expenditures Price Index (PCE)
The change in the PCE from April 2022 compared to a year ago is an increase of 6.3%. This is broken into: Energy 30.4%; Food 10.0%; and Excluding Those 4.9%.
Gasoline CPI
The New York Times economics writer Paul Krugman (@paulkrugman) gives the following graph of the price of gasoline in real dollars, showing that even the current US average price had been common before 2014.
Inequity in Gasoline Spending
Even a year ago on May 20, 2021, the ACEEE reported that gasoline spending was 13.8% of disposable personal income for low income households, while being only 4.1% of higher income households. Among minorities, it was 9.2% among Hispanics, 9.1% among Blacks, and 10.9% among Native Americans.
The Chained CPI
Chaining an Index means to allow cheaper substitutes choices in a category, such as when fruit changes throughout the year. This can give about a sixth lowering in the growth of the CPI. The data for this graph ended in May, 2021.
The PCE is Lower than the CPI
The growth in the PCE can be about a sixth lower than the growth in the CPI. The data for this graph ended in May, 2021.
Here is a comparison of all the indexes from the Wikipedia article on the PCE. The Gray line is the CPI, and the Red line is the PCE.
The currently top Blue line is the Producer Price Index (PPI) which is the prices paid by wholesalers to producers. It is indicative of prices which will later hit the consumers.
In the past, you can see the preferred value of about 2% inflation a year.
