The Bureau of Labor Statistics released its monthly report on the rate of inflation with the release o the Consumer Price Index (CPS) report for July 2016. Officially we saw inflation of 0.8% for all goods without seasonal adjustments. The Problem is that every category, and every subcategory, is reweighted every month and every year. Evaluation of the data requires examining the rate of inflation, non-seasonally adjusted, from July Last year to July this year, keeping the weighting from last year constant.Some Categories saw inflation of 3%, 4% and even 8% year over year. Other categories saw deflation of 1%, 2%, 4% and even 11%.
How does the government allocate our money? We saw the weighting of Food, Energy, Apparel, decreased while the weighting of Medical Care Commodities, Shelter, Medical Care Services, Hospital Related Services, and Health Insurance increased over last year's weighting.
What do these changes mean? If we use the 2015 data for percentage of budget (weighting) or the relative importance and apply the inflation for the category a different picture is painted.
We saved $42 during July on Energy. The meme that has taken hold in the news is that we are saving money on gasoline and that it should be acting as a stimulus for the economy. The problem is that a person does not live on gasoline alone. We need food, shelter and medicine.
We Spent $43 more on Shelter last month. We are seeing increases in Rent and the Rent Equivalent (Mortgage Payment) for home owners compared to last year. This has been a regular trend of late.
Did we Spend $2 more last month on Health Insurance or $10 more? Health Insurance Costs Increased by 6% over last year. We also saw an increase of costs of Hospital Related Services and Medical Care Services 4.9% and 3%If we keep the weighting the same as it was last year we saw our expenses increase by $2. If we re-weight it, as the government has, we spent $10 more last month.
Did we Spend More on Clothing or Less? Did we spend more on furniture or less? Did we spend $26 more on Medical Care Services or $17 more. Did we save money on personal care services?
There are a lot of questions. If we use the weighting from 2015 and 2016 we see the official rate of inflation as 0.67%, annually. If we use the seasonal factors from last year and the inflation/deflation rates for the past year we have seen inflation of 1.82%. We have a bifurcated inflationary set-up.Energy, Recreation and Education have experienced deflation. Food, Medicine, Shelter and everything else has seen inflation - some of it substantial. Even though we have "saved" $42 on energy costs this month we spent $115 more this month on other items for a net higher expense of $72 this month, based on last year's numbers
Where will we be if inflation actually kicks into overdrive?
(Note: The weighting does not equal 100.00 for either year of data. This is most likely due to either rounding errors. Note also that the same categories have a higher total value this year than last year (100.98 vs 100.31.))