Do Official Inflation Numbers Match Your Experience?
April 2008 inflation numbers were released by the BLS recently, causing quite a stir. According to the BLS, the official CPI-U index (yes, this index includes food and energy) was up a moderate 3.9% over the past year and a worrisome 0.6% since March. The biggest inflationary offenders over the last year are dairy products up 11.8%, gasoline up 20.7% and “fuel oil and other fuel” up a whopping 42.8%. The news wasn’t all bad, however. Prices for many products feel to help offset gains elsewhere, including Womens’ and girls’ apparel down 5%, new vehicles down 1.3%, information technology hardware/services down 6.4%, and personal computers and peripheral equipment down 13.2%.
Note that these are non-seasonally adjusted, which helps simplify the comparison without having to worry about running afoul of the BLS’s complicated (and unnecessary, in my opinion) seasonal adjustment formula. Even though the 12 month numbers look fine, the recent acceleration in the inflation rate is troublesome. It seems reasonable to conclude this recent spurt is in response to higher commodity prices and recent monetary policy. However, hopefully Bernanke is done cutting rates for now, so I expect prices to stabilize somewhat over the next year.
Do These Numbers Jive With Your Experience?
While it’s important to remember these are national aggregate numbers and aren’t meant to match with anybody’s actual experience in particular, it’s always fun to compare. I unfortunately don’t track my own personal inflation rate (too much work) but I do have a good idea of the state of things. For me, the numbers seem more or less spot on with two exceptions. First, my food costs have actually gone down. I’ve been striving to eat healthy, natural, unprocessed foods over the last year in an effort to improve my health and help with my marathon training and believe it or not, those kinds of foods are actually significantly cheaper than the processed-crap-in-a-box most Americans eat. This entails less eating out and very little meat (not that I ate much meat anyway), so my food costs have dropped dramatically; however, I made this change purely for health reasons and not economic reasons.
Second, I don’t pay much attention to gas prices. I live just a few miles from work and drive a Toyota Corolla with a manual transmission, so I use very little gas on a day-to-day basis. That said, I have noticed the rise in prices just because everybody is always talking about it, but it doesn’t really affect me. Gas would probably have to get above $10 per gallon before I would start feeling it, and I would probably just start riding the bus long before that happened.
There’s been a lot of noise around the blogosphere lately decrying the latest numbers as unrealistic and not congruent with reality. What about you? Do the latest numbers match you personal experience or not? If not, what in particular doesn’t match up and how do you plan to compensate?
Fortunately I haven’t really felt in pain from price increases. I have noticed that some things are increasing, for example for the first time ever I filled up my little Honda Civic and it cost me $40. But all in all I guess I just naturally adjust for these ups and downs in my budget as I’m still maintaining the same budget as I did over a year ago.
Let me use another example involving the Honda Civic.
In 1983, as part of its social security salvage, the government also re-adjusted how it computes inflation. Since that time (Surprise!), official inflation figures have been low. For the last 25 years, the government has been claiming that inflation is about 3% per year (sometimes more, sometimes less).
The “Rule of 72″ states that if you divide the government figures of 3% into 72, prices would have doubled in the last 25 years. Really? In 1980, you could buy a new stripped-down Honda Civic for under $4,000. Under the government’s figures, the price of a new, stripped-down Civic would have doubled to $8,000+ by now. Instead, stripped-down Civics are $16,000+. Therefore, inflation rates for the Honda Civic have averaged 6% per year since the early 1980s, not 3%. Notice how college tuition rates and health insurance rates year in and year out have also also increased by 6%?
Always double the government’s official CPI figures to get the true inflation rate. The government says 4% right now. Count on 8%–and it’s rising even by their own admission!!!