I think food and energy price changes are removed from the “core” CPI for “legitimate” reasons. Keep in mind that these price changes are included in the “headline” CPI which is usually reported with the “core” rate.
Changes of energy and food prices often result from geopolitical and meteorological factors which don’t relate directly to the supply and demand variables which influence the US business cycle. The changes of most other prices may result more directly from the supply and demand variables which influence the business cycle. For this reason the trends which develop in other prices may more accurately indicate overall price trends in the economy.
The US Bureau of Labor Statistics attributes the removal of energy and food prices from the “core” CPI to the volatility of those prices. This explanation is offered on a FAQ page at:
“Which index is the “Official CPI” reported in the media?
Our broadest and most comprehensive CPI is called the All Items Consumer Price Index for All Urban Consumers (CPI-U) for the U.S. City Average, 1982-84 = 100.
In addition to the All Items CPI, BLS publishes thousands of other consumer price indexes. One such index is called ‘All items less food and energy’. Some users of CPI data use this index because food and energy prices are relatively volatile, and these users want to focus on what they perceive to be the ‘core’ or ‘underlying’ rate of inflation.
Again, while we publish many indexes, our broadest measure of inflation includes all items consumers purchase, including food and energy.”
mike barker
on 03/18/2011 at 2:47 PM
Chris…is there a “legitimate” reason that energy and food are excluded from inflation measures or is it just one more way for politicians to obscure the truth so that they will get re-elected?
Mike:
I think food and energy price changes are removed from the “core” CPI for “legitimate” reasons. Keep in mind that these price changes are included in the “headline” CPI which is usually reported with the “core” rate.
Changes of energy and food prices often result from geopolitical and meteorological factors which don’t relate directly to the supply and demand variables which influence the US business cycle. The changes of most other prices may result more directly from the supply and demand variables which influence the business cycle. For this reason the trends which develop in other prices may more accurately indicate overall price trends in the economy.
The US Bureau of Labor Statistics attributes the removal of energy and food prices from the “core” CPI to the volatility of those prices. This explanation is offered on a FAQ page at:
http://www.bls.gov/cpi/cpifaq.htm
“Which index is the “Official CPI” reported in the media?
Our broadest and most comprehensive CPI is called the All Items Consumer Price Index for All Urban Consumers (CPI-U) for the U.S. City Average, 1982-84 = 100.
In addition to the All Items CPI, BLS publishes thousands of other consumer price indexes. One such index is called ‘All items less food and energy’. Some users of CPI data use this index because food and energy prices are relatively volatile, and these users want to focus on what they perceive to be the ‘core’ or ‘underlying’ rate of inflation.
Again, while we publish many indexes, our broadest measure of inflation includes all items consumers purchase, including food and energy.”
Chris…is there a “legitimate” reason that energy and food are excluded from inflation measures or is it just one more way for politicians to obscure the truth so that they will get re-elected?