Tuesday, January 3, 2012

Announcing the EPJ Real Core Price Inflation Index

Under pressure from President Richard "I am not a crook" Nixon, then-Fed Chairman Arthur Burns created the "core inflation" index. "Core" inflation took food prices and energy prices out of the index, under the guise that they are too volatile.

In truth, they are more sensitive to price inflation than many other items. Most absurd about the removal of food and energy prices from the "core" index is the fact that they are key components of what consumers actually spend day in day out in their daily routines.

In an attempt to bring sanity to the concept of "core price inflation",  EconomicPolicyJournal.com has developed the EPJ Real Core Price Inflation Index. The EPJ-RCPI Index is an index that measures the price inflation of core items that people buy on a daily basis: Gasoline, other transportation services, food, apparel, shelter, utilities and medical care.

These items are weighted in the EPJ-RCPI Index based on the spending patterns determined by the BLS Composition of consumer unit: Average annual expenditures and characteristics, Consumer Expenditure Survey, 2010.

The EPJ-RCPI Index is then calculated by using the BLS percent changes in CPI for All Urban Consumers (CPI-U): U.S. city average. (The same raw data that is used to calculate the BLS headline and core price inflation numbers)

For the month of November, while the 12 month BLS headline CPI came in at 3.4% and the BLS "core" CPI came in at 2.2%. The EPJ-RCPI Index (the index which most closely measures what consumers are actually spending money on a day in day out basis) came in, for November, at 5.95%.

In other words, the real price inflation on goods and services that consumers actually use daily, is climbing 1.7 times faster than the rate of the BLS misnamed "core" index. And  real price inflation climbed 75% faster than the BLS headline index.

In the future, The EPJ Real Core Price Inflation Index will be released on the same day that Bureau of Labor Statistics releases its CPI data.

14 comments:

  1. As always, RW delivers. Great idea, I've been mulling over a separate index myself much like the BigMac index.

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  2. Are you going to publish a historical time series?

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  3. Thanks, Bob. This is my goto index.

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  4. You have to love the race obsessed left these days. They rely on an outspoken anti-semite like Keynes for their economics, and a complete crook like Nixon for their version of what "inflation" really is! Add in someone like Krugman who is consistently wrong and you get a whole lot of ignorance all rolled into one.

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  5. @Anon: and let's not forget the fraud of the Boskin Commission in the 90's.

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  6. Using dated pictures of (always rising) food prices would help make your point.

    I think a series of cellphone pics of groceries on the shelf in 2008 followed by their much higher prices in 2011 would've made a lovely youtube video. Interspersing those pictures with the dates of "quantitative easing", bailouts, and other criminal nonsense would tie it all together for people who don't understand what "inflation" really means. Knuckle draggers like Krugman will continue to blame it on the untermenschen and bang the war drum regardless, but some people can't be helped.

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  7. Alright! Glad to here this news, Robert. It will be among my monthly go-to releases.

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  8. Excellent, Bob!

    Great idea for a video, Alvin; please create it.

    The natives are restless!

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  9. Will be interesting to see how your calculation compares to Shadowstats.

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  10. Bob, is this going to be subscription-only, or are you going to be releasing this on your home page? Or, are you testing the audience reception right now to come to a conclusion? Haha.

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  11. @Joseph Fetz

    At this point, I will announce the monthly results here at EPJ, but not the exact formula.

    Down the road, way down the road, I may go in either direction. I may publish the formula or close the entire result to subscribers. I have no specific plans at this time, though, to close it up.

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  12. This is a great idea! Thank you! I think we need to set up a Twitter account to send out the EPJ-RCPI when it's announced! @EPJRCPI?

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  13. In addition to this much better price index for consumer price inflation, how about also having an index for prices at the higher levels of production in the capital structure? The BLS gives us the PPI (Producers Price Index), but I suspect it is not nearly as useful as a price index based on the Austrian theory of capital structure that would track the higher orders of production. This would be a better leading indicator of changes in the business cycle. How about it?

    Also, are you going to publish historic values for the EPJ-RCPI?

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