Tuesday, March 17, 2015

Craft Beer and E-Cigarettes Added to CPI Basket

This is a great object lesson in understanding why any price index does not  reflect your exact price inflation experience.

FT reports:
What do e-cigarettes, protein powders, sweet potatoes and craft beers have in common?

Answer? They are among the 13 items that have been added to the official basket of goods used to calculate UK consumer price inflation.

In the Office for National Statistics' periodic review of the basket - which now contains 703 items - other additions are streaming music subscriptions, computer games consoles online subscriptions, headphones and mobile phone accessories such as chargers and covers.

Yoghurt drinks and sat navs are among the goods that have ben removed. In the latter's case this, according to the ONS, is "because many drivers now navigate using smart phones, but also because some new cars now come with sat navs built in".

Other changes include frozen pizza being replaced by chilled pizza and an oven-ready joint being swapped with a gammon or pork oven-ready joint because proposed international classification changes require the joint to come from a specific animal.

I don't consume e-cigarettes, protein powders, sweet potatoes or craft beers, thus any index that has these items in it will not be reflective of my price inflation experience. Price inflation indexes are a very rough approximation of any individual's price inflation spectrum, thus they can be distorted by overweighting items that do not change in price as often as other products.


1 comment:

  1. Craft beer would be good to include...if they count "shrinkflation." Over the past few years, many have gone from a 6 pack to 4 pack at the same price, and most that used to run $3 for a 22 oz. bottle are now $4.50 or even higher, with $6 being average instead of upscale.

    Grain futures are heavily influenced by banksters, and sudden price hikes in beer are often reflective of inflation leaking to the next path of least resistance.

    The apparatchiks are still trying to blame droughts after all these years of ZIRP, but that doesn't explain the volatility in both directions, and more telling, the recent Cantillon effects that have been sending one type of food up, while something related crashes at the same time. Efficient markets! :p