Monday, May 3, 2010


The government insists it's not happening, so for the benefit of anyone who graduated from a public high school in the last 10 years or so, here's this:
Americans saw prices rise two percent in the year to March according to the Commerce Department's personal consumption expenditures index published on Monday.
Now 2% is a modest inflation rate, but this is the shrinkage in your wallet for one month only. For a projection of the annual inflation rate, multiply this by the number of months in a year.


Holy Guacamole! that's a rate usually reserved for the most poorly managed banana republics. Sounds excessive? Sure. The government has been touting 3% annual for years.
The trick is to report the rate thusly:

"Excluding the highly volatile food, clothing, and shelter components, last months inflation was a modest 1.1%." Or words to that effect.

Except I don't know anyone who doesn't buy food, clothing, and shelter, which includes energy costs. You have to dig a bit to get the rest of the story:
Energy and food costs rose 18.7 percent against March 2009, up almost four percentage points compared with February.
So last years number was right up there, no?

Wikipedia defines the Consumer Price Index, which is a prime component for calculating the inflation rate, as the average of price times weight:
The prices of 95,000 items from 22,000 stores, and 35,000 rental units are added together and averaged. They are weighted this way: Housing: 41.4%, Food and Beverage: 17.4%, Transport: 17.0%, Medical Care: 6.9%, Other: 6.9%, Apparel: 6.0%, Entertainment: 4.4%. Taxes (43%) are not included in CPI computation.
Good thing taxes aren't included, eh?

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