Focus on Economic Data

The Bureau of Labor Statistics news release about the consumer price index (CPI-U) for the month of October 2010 was very much like the CPI news releases in several previous months.  The BLS reported a very moderate rise in the general price level, and then commented on the key role that energy prices played in the determination of the price index for the month of October.

U.S.Bureau of Labor Statistics News Release
Consumer Price Index - October 2010

Released November 17, 2010

“The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in October on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.2 percent before seasonal adjustment.”

“As has frequently been the case in recent months, an increase in the energy index was the major factor in the all items seasonally adjusted increase. The gasoline index rose for the fourth month in a row and accounted for almost 90 percent of the all items increase; the household energy index rose as well.”

The overall CPI-U increase was primarily due to the increase in energy prices in October.  Did you notice the jump in gasoline prices last month?  The CPI added 0.2 percent for the month, but after factoring out energy and food (the core index), there was no significant change.  The BLS commented, “The index for all items less food and energy was unchanged in October, the third month in a row with no change.”

What categories of consumer prices changed in October?

Figure 1, below, shows the price level changes for the spending categories of the CPI market basket that increased and decreased on the month of October.  Do you see any patterns? 

Figure 1:  CPI-U Price Level Changes by Spending Category (Seasonally adjusted)
	Sept. 2010	Oct. 2010	12 mos. ended Oct. 2010
These spending category price levels increased in October:
All Items	.1	.2	1.2
Food	.3	.1	1.4
Food at home	.3	.0	1.4
Food away from home (1)	.3	.1	1.4
Energy	.7	2.6	5.9
Energy commodities	1.8	4.4	9.9
Gasoline (all types)	1.6	4.6	9.5
Fuel oil(1)	.8	4.7	14.5
Energy services	-.8	.2	.9
Electricity	-.3	.4	.6
All items less food and energy	.0	.0	.6
Medical care commodities	.3	.1	2.5
Services less energy services	.1	.1	.8
Shelter	.0	.1	-.3
Transportation services	.3	.3	2.8
Medical care services	.8	.2	3.6
These spending category price levels decreased in October:
Utility (paid) gas service	-2.3	-.4	1.9
All items less food and energy	.0	.0	.6
Commodities less food/energy commodities	-.2	-.2	.1
New vehicles	.1	-.2	.4
Used cars and trucks	-.7	-.9	8.6
Apparel	-.6	-.3	-1.2
(1) = not seasonally adjusted

 

Some Prices Go Up

Look again at energy commodities, gasoline, and fuel oil.  If many people in your region heat their homes with fuel oil, their budgets were hit hard by this month’s price increase.  Did they think ahead and buy fuel oil in September?

Those who drive long distances commuting to work or who drove to grandma’s house for Thanksgiving dinner may have felt the October price change a little more than others. 

Some Prices Go Down

As usual, some price categories decreased.  Why do you think use car and apparel prices decreased in October?  It must have something to do with supply and demand!

How the overall price level change affects each individual is determined by their individual consumption pattern.  Remember, the CPI is a “market basket” of goods and services that reflects typical consumer purchasing.  The impact will be significant different between demographic and geographic groups.   

The Level of the CPI-U in October 2010

The CPI-U for October 2010 was 218.879.  That is an increase of 50.7 cents from September.   Remember, the level of the CPI-U is relative to the base year level of 100.  The base year for most of the spending categories is the period of 1982-84.  That means the market basket of goods and services cost $100 in 1983-84. 

How much inflation have we experienced since 1982-84?  The CPI-U index has increased by 118.879 points, so the price level has slightly more than doubled in that period of time, a 118% increase in 26 years.  Simply put, it has increased by an average of about 4 ½ percent per year. 

Figure 2, below, shows the monthly changes in the CPI-U from 2002 through October 2010.  Note the great variations of change over the time period.  Note the spikes of monthly changes over one percent in September, 2005 and in June, 2008.  More recently, note the three month period of 0.7 percent monthly price level decreases in 2008.  At that time, deflation, a sustained drop in the price level was a serious concern for many economist, financial analysts, and planners.

For more detailed price index data for October, 2010, see Table 2 of the BLS news release.  Consumer Price Index Data for October 2010. www.bls.gov/news.release/cpi.t02.htm

Not Seasonally Adjusted CPI measures

The Consumer Price Index for All Urban Consumers (CPI-U) increased 1.2 percent over the last 12 months to an index level of 218.711 (1982-84=100). For the month, the index rose 0.1 percent prior to seasonal adjustment.

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 1.5 percent over the last 12 months to an index level of 214.623 (1982-84=100). For the month, the index rose 0.1 percent prior to seasonal adjustment.

The Chained Consumer Price Index for All Urban Consumers (C-CPI-U) increased 1.0 percent over the last 12 months. For the month, the index rose 0.2 percent on a not seasonally adjusted basis. Please note that the indexes for the post-2008 period are subject to revision.

BLS Note on Seasonal Adjustment

“Because price data are used for different purposes by different groups, the Bureau of Labor Statistics publishes seasonally adjusted as well as unadjusted changes each month.  For analyzing general price trends in the economy, seasonally adjusted changes are usually preferred since they eliminate the effect of changes that normally occur at the same time and in about the same magnitude every year--such as price movements resulting from changing climatic conditions, production cycles, model changeovers, holidays, and sales.”

“The unadjusted data are of primary interest to consumers concerned about the prices they actually pay. Unadjusted data also are used extensively for escalation purposes. Many collective bargaining contract agreements and pension plans, for example, tie compensation changes to the Consumer Price Index before adjustment for seasonal variation.”

For more information, go to the CPI home page at www.bls.gov/cpi/ or contact the CPI Information and Analysis Section at (202) 691-7000 begin_of_the_skype_highlighting              (202) 691-7000 begin_of_the_skype_highlighting              (202) 691-7000      end_of_the_skype_highlighting begin_of_the_skype_highlighting              (202) 691-7000      end_of_the_skype_highlighting begin_of_the_skype_highlighting              (202) 691-7000      end_of_the_skype_highlighting begin_of_the_skype_highlighting              (202) 691-7000      end_of_the_skype_highlighting begin_of_the_skype_highlighting              (202) 691-7000      end_of_the_skype_highlighting begin_of_the_skype_highlighting              (202) 691-7000      end_of_the_skype_highlighting      end_of_the_skype_highlighting.

U.S. Regional Differences in Price Levels

The BLS also collects and reports consumer price level changes in four large regions of the United States and major metropolitan areas through its regional offices.  Price levels will vary from region to region for a variety of reasons.   The following are the BLS press releases on the regional consumer price indexes for October, 2010.

The BLS Regions

The Northeast - Connecticut, Maine, Massachusetts, New Hampshire, New York, New Jersey, Pennsylvania, Rhode Island, and Vermont.

“The Consumer Price Index for All Urban Consumers (CPI-U) in the Northeast region rose 0.3 percent in October, the U.S. Bureau of Labor Statistics reported today. Sheila Watkins, the Bureau’s regional commissioner, noted that the recent increase was largely due to a 2.2 percent advance in the energy index. Prices were also higher for both all items less food and energy (0.1 percent) and food (0.3 percent) over the month. Within the energy index, higher gasoline prices led the recent increase.”

“Over the last 12 months, the CPI-U increased 1.5 percent. The index for all items less food and energy rose 0.9 percent over the year. Prices were also higher for both energy (6.1 percent) and food (1.7 percent) since October 2009.”

The Midwest - Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin.

“The Consumer Price Index for All Urban Consumers (CPI-U) in the Midwest was unchanged in October the U.S. Bureau of Labor Statistics reported today. Regional Commissioner Charlene Peiffer noted that the indexes for food and all items less food and energy (each up 0.1 percent) registered little movement over the month and the index for energy decreased 1.8 percent. Within the index for all items less food and energy, apparel prices increased reflecting normal seasonal patterns while prices for used cars and trucks were among those that recorded declines.”

“Over the last 12 months the CPI-U rose 1.5 percent. The energy index, which includes motor fuel and household fuels, was up 8.4 percent since last October and the index for food rose 1.5 percent. Excluding food and energy, the CPI-U increased 0.6 percent over the year.”

The South - Alabama, Arkansas, Delaware, District of Columbia, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, and West Virginia.

The Consumer Price Index for All Urban Consumers (CPI-U) for the South was little changed, up 0.1 percent in October, the U.S. Bureau of Labor Statistics reported today. Sheila Watkins, the Bureau’s regional commissioner, noted that prices edged up for both energy and all items less food and energy, while food prices were unchanged. Within the all items less food and energy group, apparel and medical care were among those indexes that recorded increases.

Over the last 12 months, the CPI-U rose 1.3 percent. The index for all items less food and energy advanced 0.8 percent over the year.

The West – Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming.

“Prices in the West region, as measured by the Consumer Price Index for All Urban Consumers (CPI-U), increased 0.1 percent in October, the U.S. Bureau of Labor Statistics reported today. Regional Commissioner Stanley W. Suchman noted that the special aggregate index for all items less food and energy was unchanged over the past month.”

“Over the last 12 months, the CPI-U rose 0.6 percent. Energy prices rose 4.5 percent, largely the result of an increase in the price of gasoline. The index for all items less food and energy edged up 0.1 percent since October 2009.”

Figure 3:  Regional Price Level changes October 2010
Region	CPI-U Change Sept. 2010 to Oct. 2010	CPI-U Change Oct. 2009 to Oct. 2010	Core CPI-U Oct. 2009 to Oct. 2010	Energy Prices Oct. 2009 to Oct. 2010
West	+0.1%	+0.6%	+0.1%	+4.5
South	+0.1%	+1.3%	+0.8%	+5.2%
Midwest	no change	+1.5%	+0.6%	+8.4%
Northeast	+0.3%	+1.5%	+0.9%	+6.1%

Notice the differences between the CPI-U increases over the last year in the four regions.  The Northeast experienced a larger increase than the other regions in October.  The West had a much smaller CPI-U increase over the last year and a smaller increase in the core rate of inflation.  The Midwest experienced a greater increase in energy prices.   All four of the regional reports mentioned the significant impact of energy prices in the past year on their overall price level.

Take a look at the price level and inflation data for your region and/or your closest large metropolitan area.  Go to the link to your region.  

All regional data links:  http://www.bls.gov/regions/cpi.asp

• West:              www.bls.gov/ro9/cpiwest.htm
• South:             www.bls.gov/ro6/fax/cpisouth.htm
• Midwest:         www.bls.gov/ro7/cpimdw.htm
• Northeast:      www.bls.gov/ro3/cpine.htm

International Price Level Comparisons

The BLS also publishes comparisons of price level data for the major industrialized nations; the United States, Canada, Japan, France, Germany, Italy, Sweden, Switzerland, and the United Kingdom.  Link: ftp://ftp.bls.gov/pub/special.requests/ForeignLabor/flscpim.txt

Take a look at the most recent data for the nine nations.  Figue 4, below, shows the consumer price indexes in the nine countries, by percent change from same period of previous year, for the years 1995 to 2010.

Figure 4:  Consumer Price Index in 9 countries % change from same period of previous year 1995-2010
Year	United States	Canada	Japan	France	Germany	Italy	Sweden	Switz- erland	United Kingdom
1995	2.8	2.2	-0.1	1.8	1.8	5.3	2.5	1.8	3.5
1996	3.0	1.5	0.1	2.0	1.4	4.0	0.5	0.8	2.4
1997	2.3	1.7	1.9	1.2	1.9	2.0	0.5	0.5	3.1
1998	1.6	1.0	0.6	0.7	1.0	2.0	-0.1	0.0	3.4
1999	2.2	1.8	-0.3	0.5	0.6	1.7	0.4	0.9	1.5
2000	3.4	2.7	-0.8	1.7	1.4	2.5	1.0	1.5	3.0
2001	2.8	2.5	-0.7	1.7	1.9	2.7	2.5	1.0	1.8
2002	1.6	2.2	-0.9	1.9	1.5	2.5	2.1	0.6	1.7
2003	2.3	2.8	-0.3	2.1	1.0	2.7	1.9	0.6	2.9
2004	2.7	1.8	0.0	2.1	1.7	2.2	0.4	0.8	3.0
2005	3.4	2.2	-0.3	1.8	1.5	1.9	0.4	1.1	2.8
2006	3.2	2.0	0.3	1.6	1.6	2.1	1.4	1.1	3.2
2007	2.8	2.2	0.0	1.5	2.3	1.8	2.2	0.7	4.3
2008	3.8	2.3	1.4	2.8	2.6	3.3	3.5	2.5	4.0
2009	-0.4	0.3	-1.4	0.1	0.4	0.8	-0.3	-0.5	-0.5
2010 (Q3)	1.2	1.8	-0.8	1.5	1.2	1.6	1.1	0.3	4.7

 

What nations have expereinces more or less inflation than the United States? 

 

Take a look at Japan, where the price level fell (deflation) each year from 1999 to 2005, and again in 2009 and 2010.  Many refer to the Japanese economy during the late 1990s and early 2000s as the "lost decade." 

 

In a more detailed annual report, the BLS compares the consumer price indexes of 16 and 2 regions, the "International Indexes of Consumer Prices.

 

Go to this link: www.bls.gov/fls/intl_consumer_prices_annual.htm   Look at the graphs of the annual CPI changes for the nations.  Do you see any patterns?  Notice that all of the nations experienced a greater than normal increase in their CPIs in the year 2008.

 

A Brief Review of the Consumer Price Index (from the BLS Press release)

     

“The Consumer Price Index (CPI) is a measure of the average change in prices over time of goods and services purchased by households. The Bureau of Labor Statistics publishes CPIs for two population groups: (1) the CPI for Urban Wage Earners and Clerical Workers (CPI-W), which covers households of wage earners and clerical workers that comprise approximately 32 percent of the total population and (2) the CPI for All Urban Consumers (CPI-U) and the Chained CPI for All Urban Consumers (C-CPI-U), which cover approximately 87 percent of the total population…”

     

“The CPIs are based on prices of food, clothing, shelter, and fuels, transportation fares, charges for doctors' and dentists' services, drugs, and other goods and services that people buy for day-to-day living. Prices are collected each month in 87 urban areas across the country from about 4,000 housing units and approximately 25,000 retail establishments-department stores, supermarkets, hospitals, filling stations, and other types of stores and service establishments….Prices of fuels and a few other items are obtained every month in all 87 locations. Prices of most other commodities and services are collected every month in the three largest geographic areas and every other month in other areas.”

     

“…price changes for the various items in each location are averaged together with weights, which represent their importance in the spending of the appropriate population group. Local data are then combined to obtain a U.S. city average.” 

     

“The index measures price change from a designed reference date. For the CPI-U and the CPI-W the reference base is 1982-84 equals 100.0. The reference base for the C-CPI-U is December 1999 equals 100. An increase of 16.5 percent from the reference base, for example, is shown as 116.5. This change can also be expressed in dollars as follows: the price of a base period market basket of goods and services in the CPI has risen from $10 in 1982-84 to $11.65.”

     

For more details about the CPI, go to the BLS web page, www.bls.gov/cpi/

 

Calculating the Price Index Changes

 

“Movements of the indexes from one month to another are usually expressed as percent changes rather than changes in index points, because index point changes are affected by the level of the index in relation to its base period while percent changes are not. The example below illustrates the computation of index point and percent changes.”

     

“Percent changes for 3-month and 6-month periods are expressed as annual rates and are computed according to the standard formula for compound growth rates. These data indicate what the percent change would be if the current rate were maintained for a 12-month period.”  Note: This example uses seasonally adjusted CPI data.

 

Index Point Change

 

Consumer Price Index (Nov. 2010)            218.771

Less previous CPI (Nov. 2009)                  218.177

Equals index point change                             0.594

 

Percent Change

 

Index point difference                                   0.594

Divided by the previous index                   218.177

Equals                                                            0.0027

Results multiplied by one hundred                 0.0027x100

Equals percent change (annual)                   0.27%

 

Finding Additional Data and Details in the BLS Report

You Can Design Your Own Personal CPI
 

1.      Make a list of the goods and services you purchase regularly (gasoline, food, clothes, entertainment, etc.) - Create 6-8 categories of goods and services.

 

2.      Pick one "unit" of a product from the various categories for your "market basket."

 

3.      Identify the current price of that unit of the good or service.
 

Examples:
Category	Unit	Unit Price	Basket Price
Energy	10 gal of regular gasoline	$1.99	$19.90
Entertainment	2 "first run" move ticket	$7.50	$15.00
Food	2 #3 "Extra Value" Meals	$5.75	$5.75
Clothing	1 pair of Levis 501 jeans	$35.00	$35.00

 

4.      Add the total cost of the items in your "market basket."   (For example, your market basket may cost $125.00 for all of the items (total number of each unit times the price.)

 

5.      Make the current price of the basket the "base" by designating it as 100.

 

6.      A month (or a year) from now, go back to the various stores and check the prices of the same items in the "market basket." Suppose the same items now cost $129.00. The price of the basket has increased by $4.00.

 

7.      Using this example, what has been your rate of inflation? A $4 increase from $125 to $129 is a 3.2% increase. (4/125 = .032) Your rate of inflation during that period was 3.2%.

 

8.      Determine the rate of inflation for your market basket. If you wait one month, you can multiply the monthly increase by 12 to determine an approximate annual increase (assuming that the prices rise at about the same rate each month).

 

9.      This will give you an idea of how a "market basket" price index works. Of course, you would normally have to measure the changes in the prices of your index items for a longer period of time to see much inflation.

What do you think has happened to the prices of the items in your "market basket" in the past year? 

       
What do you think will happen to those prices in the coming year? 

Does taking the food and energy items out of your basket make a difference?