The August 2018 CPI, Consumer Price Index, or inflation report was released yesterday. The headlines were that the total Inflation rate dropped from 2.9% to 2.7% and that the month to month inflation stayed steady at 0.2%. The rate of inflation is the change in the same basket of goods over a month or a year. Some items are more expensive during the Summer while other are more expensive during the Winter. The problem is that, as this column has written for an extended period of time, we have been experiencing Shelter inflation, Medical Inflation, Service Inflation, and Commodity Deflation. A second problem is that the weighting of various aspects of the CPI calculation has changed from month to month and year to year. A third problem is that the authors of the report like to exclude the "volatile food and energy" costs, something consumers are unable to do for very long. We need food, electricity, gasoline, and other items on a regular basis. An increase in weighting of a lower priced good or service brings down inflation. A decrease in weighting of goods and services that are experiencing inflation reduces their impact on the overall inflation rate.
Commodity Deflation and Service Inflation, Shelter Inflation Again. Food edged higher for the first time in a very long time. Energy is up 10% from last August. Recreational Commodities and Education/Communication Commodities fell, as did Apparel and Household furnishings.
Commodity Weighting Inflation, Service weighting deflation. The weighting on health insurance increased by 5% from 1.004% to 1.046%. Who only spends 1% of their monthly income on Health Insurance?
Yes, when things get seasonally expensive we tend to shift our buying habits. The weighting on shelter has dropped from August 2015 to August 2016, 2017 and 2018. Health Insurance Weighting has soared. Food weighting has dropped. Some segments had seen consistent inflation while others have seen consistent deflation. Watch your pocketbooks and wallets.
It's the economy.
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