How Well Does The CPI-W Measure The Average Consumer’s Inflation?

The Department of Labor, Bureau of Labor Statics (BLS) said in its April CPI-W report that, “Gasoline and food prices continued to rise and together accounted for almost three quarters of the seasonally adjusted all items increase in March. The gasoline index posted its ninth consecutive increase and has now risen 14.4 percent over the last three months.” This seems true enough, but their monthly reports don’t really seem to match our perception that inflation has occurred at a considerably greater rate than what they say.

I charted the BLS’s CPI-W amounts for the period from September 2009 through March 2011. It shows inflation increasing at a fairly steady rate of about 0.1% per month from September 2009 until November 2010 (a total of about 1.62% in 14 months.) From November 2010 until March 2011, the rate of inflation sharply increased to the rate of about 0.6% per month (a total of 2.45% in 4 months.) This sharp increase is probably linked more to the price of gasoline, which has been increasing rapidly in cost for about 6 months. The increase in the price of gasoline and other fuels is caused by an increase in the cost of oil, which is being manipulated by speculators. According to oil producers, there is a glut of oil in the market, and by rights prices should be going down due to oversupply.

Line Chart Showing Increase in CPI-W From Sep-09 Thru Mar-11

CPI-W Sep-09 Thru Mar-11

The gray lines help show the sharp change in the rate of increase in the CPI-W. Overall, according to the BLS, the increase from September 2009 through March 2011 has been about 4.1%, which averages out to about 0.23% per month.

To me, this seems low, based just on grocery shopping. It has been my perception that the cost of groceries (food and sundry items) has been steadily increasing since about the end of 2009. My gut feeling was that the increase was about 20%, based on the amount I paid each shopping. I thought the BLS was under-reporting inflation in food costs, and by implication, other costs as well. After seeing the latest CPI-W report, I thought I’d put my perception to a little test. I have been shopping at the same supermarket for a little over a year. I located a receipt from March 2010 and compared the prices they charged then to prices they charge for the same items now. This is anecdotal, but, I think, very interesting.

Grocery Item Mar-10 Price Mar-11 Price % Change
Dairy & Deli
Benecol Light Spread $5.99 $6.59 10.0%
Knudsen Half & Half, 1 Qt $3.29 $4.19 27.4%
Minute Maid Orange Juice 128 Oz $6.99 $6.99 0.0%
Sargento Shredded Cheese, 8 Oz $3.49 $4.19 20.1%
Yoplait Yogurt, 6 Oz $0.69 $0.80 15.9%
Frozen
Healthy Choice Dinner $3.00 $3.99 33.0%
Marie Callender Dinner $3.89 $3.69 -5.1%
Store Brand Chopped Onions, 1 Lb $1.29 $1.70 31.8%
Stouffer Entree $3.00 $3.00 0.0%
Box & Can
Arrowhead Water, Case of 24, 1/2L Bottles $3.99 $4.39 10.0%
Barilla Spaghetti, 16 Oz Box $1.50 $1.99 32.7%
Campbell’s Chunky Soup, 19 Oz Can $2.49 $2.49 12.0%
Del Monte No Salt Added Cut Tomatoes, 14 Oz Can $1.49 $1.99 33.6%
Equal Sweetener, 100 Packets $5.29 $5.99 13.2%
Folger’s Instant Coffee, 12 Oz $8.89 $10.49 18.0%
Francisco French Bread, 16 Oz $3.39 $4.99 47.2%
Hunts Tomato Paste, 6 Oz Can $0.99 $1.09 10.1%
Kraft Grated Parmesan Cheese, 16 Oz $8.99 $8.99 0.0%
Kraft Tartar Sauce, 12 Oz Bottle $2.39 $3.59 50.2%
Libbys’ Chicken Vienna Sausages, 5 Oz Can $1.29 $1.49 15.5%
Lipton Sugar Free Green Tea, Case of 12 1/2L Bottles $6.99 $8.09 15.7%
Ocean Spray Cranberry Juice Cocktail, 48 Oz Bottle $3.99 $3.89 -2.5%
Premium Saltine Crackers, 16 Oz $2.79 $3.29 17.9%
Quaker Instant Oatmeal, Box Of 10 Packets $4.99 $5.49 10.0%
Roman Meal Hamburger Buns $3.39 $4.39 29.5%
S&W Red Kidney Beans, 16 Oz Can $1.59 $1.70 6.9%
Store Brand Mushroom Stems And Pieces, 8 Oz Can $1.69 $1.89 11.8%
Store Brand Tomato Sauce, 8 Oz Can $0.50 $0.60 20.0%
Swanson Chicken Broth, 15 Oz Can $1.55 $1.69 9.0%
Sundry
All Laundry Detergent, Free & Sensitive, 100 Oz Bottle $7.49 $10.99 46.7%
Arm & Hammer Cat Litter, 20 Lb Box $7.49 $10.99 46.7%
Downy Fabric Softener, Free & Clear, 103 Oz Bottle $6.99 $11.59 65.8%
Kleenex Tissue, Box of 260 (Smaller) Tissues $3.29 $3.69 12.2%
Other
Ground Beef, Extra Lean, 1 Lb $4.99 $6.99 40.1%
Totals $131.56 $157.11 19.4%

So why would the BLS under-report inflation? It has been the Federal Reserve’s policy for some time to inject more dollars into the economy. This money goes to the banks and unfortunately stops there. It doesn’t really get into the economy. In addition, there is no value behind these dollars; they are borrowed. This is supposed to get the economy up and running by increasing the money supply. It also is supposed to make foreign goods more expensive to import and domestic goods cheaper to export, which would help our trade deficit. It isn’t really working on either account, and it is inflationary. This is essentially what the Weimar Republic did in the early 1920s to try and get Germany’s economy going after the debacle of World War I and the immense debt imposed on them by the Versailles Treaty. They printed baseless money. When I was in high school, a friend had a 100,000,000 Reichmark note, which at the time it was printed was already nearly worthless. The Obama administration is in a position where they really don’t want to acknowledge the inflation their fiscal actions are causing. But it is the only way they can get extra money into the economy because there is no way that Congress will permit another stimulus, which is the best way to fight a recession, because it bypasses the banks and gets money directly to the American people.

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One Response to How Well Does The CPI-W Measure The Average Consumer’s Inflation?

  1. Karl Hammerle says:

    Your comparsions for food items are interesting. However, inflation has hit those of us who use fresh fruit and vegetables as a major part of our diets even more that what is indicated in your comparsion which was nearly all for processed items which the manufacturer have been attempting to hold the prices somewhat. What will happen this fall and winter as the increased cost for raw ingrediants makes its way into the processed food chain is yet to be seen, but significant price increases are highly likely especially in view of the continuing bad weather in much of the nations croplands.

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