CPI Composition

[DcifrThs]

Well,

here we have the composition, item by item of the CPI as reported december 2006 (it is reported every december but can be used from any point in time to any other point in time):

CPI RI 2006

and here we have the page that explains how to use the #s above.

BLS_CPI Relative Importance Archive

Basically, you can see the relative importance of every item in the consumer price index and see how it changed over time.

the reason this was so hard to find is simply because it doesn't come up unless you look for "relative importance" rather than just contribution or composition.

One thing that stands out is the 6.28 relative importance of medical services vs. recreation (5.5) and transportation (6.0). this means that we spend on average about as much on transportation and recreation as we do on our medical care. considering that it is widely viewed that we spend too little on medical care (i.e. that there are too many uninsured), it seems it we cut back on fun, we could have more health [img]/images/graemlins/tongue.gif[/img]

questions, comments, thoughts?

Barron

[yukoncpa]

This is interesting. I would have thought that the reason health is so high relative to transportation and recreation is because of the monthly insurance payments that have to be paid. But health insurance is actually a minuscule cost relative to everything else.

Why, instead of house prices, do they list, “Owners Equivalent Rent of Primary Residence”? Housing prices have soared recently, but for some reason this information isn’t included in CPI.

[DcifrThs]

[ QUOTE ]
This is interesting. I would have thought that the reason health is so high relative to transportation and recreation is because of the monthly insurance payments that have to be paid. But health insurance is actually a minuscule cost relative to everything else.

Why, instead of house prices, do they list, “Owners Equivalent Rent of Primary Residence”? Housing prices have soared recently, but for some reason this information isn’t included in CPI.

[/ QUOTE ]

as i understand it all of these things are derived from survey questions asked of home-owners or home-rentors.

in order to "level" the field of these two groups, they ask questions like "how much rent do you pay each month" of rentors and "how much could you get if you rented your home right now unfurnished?"

so "owner's equivalent rent" does include owned homes, just normalized to monthly rent (i.e. to try to capture the "cost of living in a home" question)

this is reflected if you look back in time at the contribution of this #. there was an increase (far less than the overall "median housing price" increase) from previous CPI RIs to this one.

one reason is simply due to calculation. the "average" owners equivalent rent would likely be far different than the "median" owners equivalent rent.

Barron

[MrMon]

[ QUOTE ]

Why, instead of house prices, do they list, “Owners Equivalent Rent of Primary Residence”? Housing prices have soared recently, but for some reason this information isn’t included in CPI.

[/ QUOTE ]

I believe this is known as an imputed cost. You have to live somewhere, but we aren't in the market for a house every day, so since housing costs are such a major part of our expenses, this is the way they do it.

The reason they do rental price rather than purchase price is that purchasing a home involves to some degree the idea that there will be a capital gain in the price of the house, it's not a pure consumption item. Rent is pure consumption. FWIW, rent vs. buy comparisons for homes has always been a pretty good test of whether or not housing prices are too high in a given area. In many areas, even though housing prices soared, rents did not, meaning that a great deal of the housing price increase was an investment driven price rise, not a consumption driven price rise.

[PLOlover]

I just heard paul craig roberts, economist under reagan, father of "reaganomics", and he said the cpi underestimates true inflation, so you know, it's not just a bunch of "kooks" or whatever.

[DcifrThs]

[ QUOTE ]
I just heard paul craig roberts, economist under reagan, father of "reaganomics", and he said the cpi underestimates true inflation, so you know, it's not just a bunch of "kooks" or whatever.

[/ QUOTE ]

i just finished reading studies that accused the CPI of overstating inflation.

the debate rages on for both sides of the issue (though i'd be more likely to think that understating is an issue vs. overstating)

either way, you can look at it and judge for yourself.

my overall point before hand though is that you can trust the market of academics to bemore informed than legislators and i thought it odd for borodog to quote a legislator rather than respected economists/journals etc.

just my thoughts.

personally, i doubt highly that if CPI is understated, it is done so on purpose.

Barron

[PLOlover]

[ QUOTE ]
personally, i doubt highly that if CPI is understated, it is done so on purpose.

[/ QUOTE ]

well part of cpi assumes that people will lower their standard of living when facing rising prices, eg, if the price of beef goes up, according to cpi, people will switch to chicken.

so it seems to me that if you are on a fixed income tied to cpi, then you are assured a lower and lower standard of living, assuming generally rising prices (which they've been for the last what, 70 years at least).

do you agree with that?

[adios]

Not sure about Bernanke but I believe Greenspan's favorite inflation metric was the implicit price deflator.

Implicit Price Deflator

[Copernicus]

The price deflator is one of any number of metrics that are helpful in policy decisions, but it is inappropriate for use in automatic cost of living adjustments, eg for Social Security benefit increases. There are too many goods in the GDP basket that irrelevant to retirees standard of living.

[Moseley]

[ QUOTE ]
questions, comments, thoughts?

[/ QUOTE ]

I think we spend too much on bacon and sausage. It's not healthy.