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INTRODUCTION

Each month, the U.S. Bureau of Labor Statistics (BLS) releases an estimate of the level of the consumer price index (CPI) and the rate of inflation in the United States for the previous month. The report provides the most recent current and seasonally adjusted consumer price indexes for all urban consumers, urban wager earners, and the chained index, plus a breakdown by major expenditure groups. The BLS also collects price level data for major metropolitan areas and regions.

This lesson focuses on the March 16, 2012, BLS press release of data on the consumer price index for the month of February, 2012.  This lesson adds  information about U.S. regional and international price levels.

For the latest updates on U.S. economic indicators, go to:

TASK

  • Identify the rate and change in the consumer price index and rate of inflation in the United States in February, 2012.
  • Identify factors that have influenced recent changes in the price level.
  • Describe how inflation impacts different groups in the economy.
  •  Distinguish between the CPI-U, core rate and other measures of inflation.

PROCESS

Between January and February, 2012, most U.S. consumer prices remained fairly stable. Some prices went up a little more than others and a few went down.  Energy prices led the increases, with gasoline up 6.0 percent.  The rise in the price of gasoline accounted for 80 percent of the total increase in the CPI-U in February, 2012.

February was a very good example of how the volatility of energy prices can impact the overall upward or downward change in the price level.  In February, the "core" CPI-U, less energy and food prices, rose only 0.1 percent, equal to just a 1.2 percent annual rate of increase. 

Take a look at the latest BLS news release on consumer prices and inflation to better understand how these changes might affect your life and the economy.

U.S. Bureau of Labor Statistics News Release
Consumer Price Index - February, 2012
Released March 16, 2012

"The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in February on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.9 percent before seasonal adjustment."

The all-items CPI-U has increased at an annual rate of 2.9 percent over the past twelve months.  After very little price level increase in late 2011 (no change in October, 0.1 percent in November, and no change in December), inflation picked-up in early 2012 (0.2 percent in January and 0.4 percent in February.)

Figure 1, below, shows the monthly change in the CPI-U from 2002 to February, 2012.  Note the erratic pattern of monthly changes over that time period.  Note the time period of the recent recession, 2008-2009.  In late 2008, the price level decreased in several months.

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The BLS announcement continued with reference to energy and food prices. "The gasoline index rose sharply in February, accounting for over 80 percent of the change in the all items index. The gasoline increase led to a 3.2 percent rise in the energy index despite a decline in the index for natural gas. The food index was unchanged in February, with the food at home index unchanged for the second month in a row as major grocery store food indexes were mixed."  

Again, look at the history of gasoline prices to put this comment in perspective. 

Gasoline prices (all types), increased 1.2 percent in August and 2.0 percent in September, 2011.  After that, gasoline prices fell, -2.8 in October, 2011, -0.9 percent in November, and -2.1 percent in December.  In 2012, prices again began to increase, up 0.9 percent in January and up 6.0 percent in February. This volatility is why some look at the "core" index as a better measurement of the real inflationary trend over a longer time period.

Next, the BLS announcement commented on the core price index. "The index for all items less food and energy rose 0.1 percent in February after increasing 0.2 percent in January. Indexes for shelter, new vehicles, medical care, and household furnishings and operations all advanced, while indexes for apparel, recreation, used cars and trucks, and tobacco all declined."   Some prices increased and some prices decreased in February.  Overall, there was very little change if you leave out energy and food prices.

Figure 2, below, shows the changes in price levels for the major CPI categories for the month of February, 2012, and for the twelve month period ending in February, 2012.  Notice again that the only major increases were in some energy prices, especially gasoline.

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Expenditure Category

Weight (1)

CPI-U Level Feb. 2012 (2)

% Change Jan. 2012 to Feb. 2012 (2)

% Change Feb. 2011 to Feb. 2012 (3)

All Items

100.000

227.663

0.4

2.9

Food & beverages

15.526

232.453

0.1

3.8

Food at Home

8.638

231.180

0

3.9

Food away from home (2)

5.669

235.603

0.1

3.1

Housing

41.020

221.117

0.1

1.8

Shelter

31.539

254.931

0.2

2.0

Fuels and utilities

5.372

217.189

-0.3

0.7

Apparel

3.562

123.312

-0.9

4.2

Transportation

16.875

214.429

2.1

5.6

New and used motor vehicles (4)

5.651

99.889

0.6

2.3

Gasoline (all types)

5.273

305.076

6.0

12.6

Public transportation

1.181

265.930

-0.2

0.2

Medical care

7.061

410.466

0.2

3.4

Recreation (4)

6.044

114.333

-0.1

1.0

Education and communication (4)

6.797

133.199

0.2

1.9

Other goods & services

3.385

391.236

0.1

1.5

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Students: Can you explain the difference between the "headline" number - the CPI for all items and the "core" rate, the CPI minus food and energy prices?  Which is the better measure of the price level over time?

Take a good look at the price level data for the major spending categories of the CPI market basket in Figure 2.  For more detailed price level data, go to Table 1 of the March 16, 2012 BLS news release: http://www.bls.gov/news.release/cpi.t01.htm   Do you see any patterns?

Students: What are your personal consumer behaviors and wants that are impacted by inflation?  What happened to the prices of the goods and services you purchase most often?

Students: Who is affected the most by inflation? 

The Level of the CPI-U in February 2011

The nominal level of the CPI-U in February, 2012, was 227.663.  That is an increase of 98 cents from the January, 2012, level.   Remember, the level of the CPI-U is relative to the base year level of 100.  The base year for most of the CPI categories is the period of 1982-84.  That means the market basket of goods and services cost $100 in 1983-84.  That same market basket (after revisions for changes in consumer behaviors) cost $221.31 in February, 2011, and increased to $227.66 in February, 2012.  The price of the basket increased $6.35 in one year - 2.9 percent.

Students: Is a $6.35 increase in the price level in one year a lot?  Assuming your income remained the same for that year, what would you have to give-up to adjust your spending for inflation?  Or, what can your buy with $6.35 that you could give-up?

How much inflation have we experienced since 1982-84?  The CPI-U index has increased by 127.663 points, so the price level has slightly more than doubled in that period of time, a 128% increase in about 28 years.  Simply put, it has increased by an average of about 3-4 percent per year.

Not Seasonally Adjusted CPI measures

The annual level of the CPI-U is not affected by seasonal changes that may occur from one season to another, so it is reported as “not seasonally adjusted.”  The annual level is the index number.

“The Consumer Price Index for All Urban Consumers (CPI-U) increased 2.9 percent over the last 12 months to an index level of 227.663 (1982-84=100). For the month, the index increased 0.4 percent prior to seasonal adjustment.”

“The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 3.1 percent over the last 12 months to an index level of 224.317 (1982-84=100). For the month, the index increased 0.5 percent prior to seasonal adjustment.”

“The Chained Consumer Price Index for All Urban Consumers (C-CPI-U) increased 2.6 percent over the last 12 months. For the month, the index increased 0.4 percent on a not seasonally adjusted basis.”

The price level for “urban wage earners and clerical workers” increased slightly more than the CPI-U in February. The “chained” index increased slightly less than the CPI-U.  Revisit the definitions of these CPI measurements for a review of the differences.  BLS FAQs www.bls.gov/cpi/cpifaq.htm#Question_2

A BLS Note about 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.”

Students: Have you noticed any prices that change with the seasons or relative to events or other factors?  How has the unusually warm weather in the winter of 2012 impacted prices? Should we expect gasoline prices to increase during periods when people drive more and demand more gasoline?

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, the states, and major metropolitan areas through its regional offices.  Price levels will vary from region to region for a variety of reasons.  

Figure 3, below, show some of the key regional price level data.  Note some regional differences.  The general price level is much higher in the Northeast than in other regions.  Prices are generally lower in the Midwest, relative to the 1982-1984 base year.  Energy prices increased much more in the past year in the South and less in the Northeast and Midwest.

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Figure 3: Regional Price Level Changes
February 2012

Region

CPI-U
February
2012

Change
Jan. 2012 to
Feb. 2012

Change
Feb. 2011 to
Feb. 2012

Energy Prices
Feb. 2010 to
Feb. 2011

 West

229.995

+ 0.4 %

+ 2.5 %

+ 6.8 %

 South

221.802

+ 0.6 %

+ 3.3 %

+ 9.2 %

 Midwest

216.855

+ 0.2 %

+ 2.7 %

+ 5.2 %

 Northeast*

242.879

+ 0.4 %

+ 2.9 %

+ 4.4 %

 U.S. Total

227.663

+ 0.4 %

+ 2.9 %

+ 7.0 %

*Northeast region data is for January, 2012, and January 2011 to January, 2012.

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The BLS reports CPI data monthly for the four U.S. regions.  The following are the most recent BLS press releases on the regional consumer price indexes for February, 2012, in the Midwest, West and South regions, and for January, 2012 for the Northeast region.

Consumer Price Index, Northeast Region – January 2012

“Regional Prices Up 0.4 Percent Over the Month, 2.9 Percent Over the Year”

“The Consumer Price Index for All Urban Consumers (CPI-U) in the Northeast region rose 0.4 percent in January, the U.S. Bureau of Labor Statistics reported today. Denis M. McSweeney, the Bureau's regional commissioner, noted that the recent rise reflected one-month increases in the indexes for all items less food and energy (0.2 percent), energy (1.5 percent), and food (0.7 percent). (Data in this report are not seasonally adjusted. Accordingly, month-to-month changes may reflect the impact of seasonal influences.)”

“Over the last 12 months, the CPI-U increased 2.9 percent. (See chart 1 and table A.) The all items less food and energy component advanced 2.5 percent over the year-the largest 12-month rise since October 2008. Prices also rose for both food and energy, up 4.3 and 4.4 percent, respectively, since January 2011.”

The Northeast region is comprised of Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont.

Midwest Region Consumer Price Index – February 2012

“Prices in the Midwest up 0.2 percent in February and 2.7 percent higher over the year”

“The Consumer Price Index for All Urban Consumers (CPI-U) in the Midwest rose 0.2 percent in February following an increase of 0.6 percent in the previous month, the U.S. Bureau of Labor Statistics reported today. Regional Commissioner Charlene Peiffer noted that higher prices for motor fuel, up 2.3 percent, had the greatest impact on the monthly index. Overall, energy costs rose 0.7 percent in February. Food prices were down 0.3 percent and the index for all items less food and energy increased 0.3 percent.”

“The CPI-U rose 2.7 percent from February 2011 to February 2012. The energy index, which includes motor fuel and household fuels, was up 5.2 percent and the index for food rose 4.0 percent. Excluding food and energy, the CPI-U increased 2.2 percent over the year.”

The Midwest region is comprised of Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin.

Consumer Price Index, South Region – February 2012

“Prices in the South up 0.6 percent over the month and 3.3 percent over the year”

“The Consumer Price Index for All Urban Consumers (CPI-U) for the South increased 0.6 percent in February, the U.S. Bureau of Labor Statistics reported today. Sheila Watkins, the Bureau’s regional commissioner, noted that energy prices advanced 3.2 percent over the month. The index for all items less food and energy rose 0.3 percent in February, led by advances in the medical care and shelter indexes, as well as a seasonal increase in apparel prices. Food prices were unchanged over the month. (Data in this report are not seasonally adjusted. Accordingly, month-to-month changes may reflect the impact of seasonal influences.)”

“Over the last 12 months, the CPI-U advanced 3.3 percent. The index for all items less food and energy rose 2.3 percent over the year.”

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

Consumer Price Index, West Region– February 2012

“Area prices were up 0.4 percent over the past month, up 2.5 percent from a year ago”

“Prices in the West Region, as measured by the Consumer Price Index for All Urban Consumers (CPI-U), increased 0.4 percent in February, the U.S. Bureau of Labor Statistics reported today. (See table A.) Regional Commissioner Richard J. Holden noted that the February increase was influenced by higher prices for gasoline and shelter. (Data in this report are not seasonally adjusted. Accordingly, month-to-month changes may reflect seasonal influences.)”

“Over the last 12 months, the CPI-U advanced 2.5 percent. (See chart 1.) Energy prices increased 6.8 percent, largely the result of an increase in the price of gasoline. The index for all items less food and energy increased 1.8 percent since February 2011.”

The West Region covered in this release is comprised of the following thirteen states: Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming.

Students: 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. You may also be able to find your state data.

All regional data links: www.bls.gov/regions/consumerprices.htm

Students:  Pick one of the four regions. Look at the region's price level data and and summarize it for the class.  What factors may have influenced prices in the region.?

The BLS also publishes data for major metropolitan areas.  If your school is in one of the metropolitan areas, you can look at your local data. www.bls.gov/bls/regnhome.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. 

BLS Link: /lessons/docs_lessons/1091_intl_consumer_prices-1.xls

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

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Figure 4:  Consumer Price Index in 9 Countries
Percent Change from the Previous Year
1995-2011

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

 1.6

 1.8

-0.7

 1.5

 1.1

 1.5

 1.3

 0.7

 4.6

2011

 3.2

 2.9

-0.3

 2.1

 2.3

 2.8

 3.0

 0.2

 5.2

 

Source:  BLS: ftp://ftp.bls.gov/pub/special.requests/ForeignLabor/flscpim.txt

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Students:  What nations have experienced more or less inflation than the United States during this time period?

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."

Note that the United Kingdom has experienced higher levels of annual price increases over the past several years than the other nations.

In a more detailed annual report, the BLS compares the consumer price indexes of 16 regions, the "International Indexes of Consumer Prices."  Go to this link: www.bls.gov/fls/intl_consumer_prices_annual.htm for the details.

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.

The Federal Reserve Bank of Cleveland provides a tool to search for price level data for many nations.  You can select countries and time periods.  You can use this online tool to learn about different countries or regions. Link: www.clevelandfed.org/research/data/world-inflation/index.cfm ]

Calculating the Price Index Changes

The BLS news release explains how the change in the price level index is calculated. “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.” The data in Figure 5, below, indicates 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.

……………………………………

Figure 5: Calculating the Consumer Price Index Change

Consumer Price Index (February, 2012)

227.663

Less Previous CPI (January, 2012)

226.665

Equals index point change

0.998

Percent Change:

Index Point Difference

0.998

Divided by the Previous Index

226.665

Equals

0.0044

Results Multiplied by One Hundred

0.0044 x 100

Equals Percent Change (annual)

0.44 %

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BONUS ACTIVITY:  How much have consumer prices changed since you were born?

Use the BLS "Inflation Calculator" to determine how much the CPI has changed since the year you were born. LINK: data.bls.gov/cgi-bin/cpicalc.pl

First, take a guess.  How much do you think consumer prices have changed in your lifetime? Put your year of birth into the calculator and hit "calculate" to find out the answer.

Finding Additional Data and Details in the BLS Report

CONCLUSION

The CPI-U for the United States increased 0.4 percent in February, 2012, but 80 percent of that change was the rise in the price of gasoline.  Other prices remained fairly stable.  Inflation has not been a significant factor in most sectors, with the exception being the somewhat erratic fluctuations of energy prices.  As the U.S. economy slowly recovers and unemployment remains stubbornly high, there are few pressures in consumer prices to rise.

Energy prices, especially gasoline and heating fuel, have jumped significantly in the past couple of months, as they have several times in recent years.  Natural gas prices have remained low due, somewhat, to the mild winter weather across much of the nation. In the past, gasoline prices have gradually fallen back to near "normal" levels.  Will they drop again?

When economic growth returns and jobs are created, consumer demand for goods and services may pressure the price level to rise.  Some will see this as a good sign, as moderate inflation over time is a good sign for the economy.

Watch for possible Federal Reserve monetary policy actions to target some level of inflation.

ASSESSMENT ACTIVITY

Students, click here to complete a multiple choice assessment of the March 16, 2012, BLS "Consumer Price Index" announcement.  

Next complete the essay question on the interactive notepad below.

Essay Question:

 
 

EXTENSION ACTIVITY

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?