Reclaiming Common Sense

Fake Inflation?

The July Consumer Price Index data  was released today. The "headline Number was 2.9%. Did things really cost us nearly 3% more this year than last July? It's not that simple.

Did we get a pay raise? 

The story about measuring inflation is you have to compare the same basket of goods. ​ If we bought a basket of good for $4000 last year and it cost us $4080 that is 2% inflation. This year the set value for a basket of goods was $4039. How? It should all add up to 100%, plus or minus some rounding errors. The tally was 100.13%. Last year it was 100.04%. They are not the same basket of goods. 

The largest spikes were in Energy, Shelter, and Transportation Services. The Shelter costs are Rent or "Owners Equivalent of Rent." If "Owners Equivalent" is increasing, it isn't increasing for everybody. Most people don't move every year. renters do not move every year. 

Did we spend more or less on Services this month compared to Last July? The weighting of transportation services, Recreation Services, Education and Communication Services, and Personal Care Services were reduced. Commodity weightings were increased from July 2017. The deflation of weighting for inflating services and the inflation of weighting for deflating commodities is problematic. 

Did we get a pay raise last year? Possibly. Can we spend $4039 a month when we only have $4000.? The reality is yes, statistically, no. We are seeing shelter inflation. Are we experiencing it? We are seeing energy inflation. Is it hitting us that hard? Are we seeing commodity deflation and service inflation? It is complicated. 

It's the economy.

We continue to see commodity deflation and service inflation. 

​We have seen commodity deflation during the month of July during July 2016, July 2017 and July 2018. I know that I can go to a store and buy a gallon of 2% skim milk for either 99 cents or $1.09 a gallon. I remember when I was a kid and gasoline was 99 cents a gallon and gasoline was 99 cents a gallon.  How can we see Shelter costs taking a small chunk of our "monthly nut" while there is inflation this year of 3.5%? July 2017 we had shelter inflation of 3.2%. July 2016 that inflation rate was 3.3%. Remember that inflation was 3.1% while we were in a deflationary year, according to the CPI-U. We had ten months of deflation during 2015.

Another month of Zero Medical Insurance Inflation? Who only spends 1.05% of their income on health insurance? The inflation rate this month was zero% even though the weighting increased from 1.00% to 1.05%.  This is coming off a 0.5% increasing in health insurance during June. A similar situation happened during May when there was zero month to month inflation and 0.5% annual inflation. The same was for April Health Insurance, as well.

Look at the spike in services. Household operations were up 5.8%. Hospital and related services were up 4.3%. Water, waste, and trash collection services were up 3.6%.