I frequently receive this question in one form or another: Why doesn’t the government consider food and energy and just tracks core inflation?
The core inflation rate is frequently quoted in the popular press, and this gives the general public the impression that the “government” doesn’t care about (or track) the rise in the prices of food and energy.
Actually, this isn’t true. The core inflation rate is simply a component of the overall inflation rate. Economists use it because seasonal factors often skew the inflation rate.
For instance, a drought might cause fruit crops to fail, causing fruit prices to rise. But this rise actually has nothing to do with inflation (i.e., price inflation caused by an increase in the money supply). It is simply a result of the forces of nature.
Another example of forces of nature causing price increases is when a hurricane causes refineries or drilling rigs to shut down. This might cause a temporary decrease in oil supply, and if supplies are tight, it could result in a temporary increase in oil prices.
Economists want to eliminate this volatility from their calculations, and so they use the “core” inflation rate to eliminate the two most volatile components from the calculation.
And so, for some reason, when “cub” reporters are assigned to report on inflation, they choose the “core” since it sounds cool or something, and people get the idea that the government has stopped tracking the entire range of goods and is only tracking the “core” inflation rate.
But I can assure you that the Bureau of Labor Statistics is still tracking about 10,000 different items every month. It publishes this information as the CPI-U or Consumer Price Index for all Urban Consumers. This is used in calculating what is commonly called the “Inflation Rate“.
This number pertains more to the average consumer because it more closely resembles what you might spend. As you might guess, since it includes 10,000 different items, some of them are food, and some are energy. It also includes clothing, beverages, rent, recreation, medical care, and even some strange things like bedroom furniture, college tuition, postage, telephone services, and computer software.
This chart from the St. Louis FED shows both the Core CPI and the Full CPI, so you can see how they compare. You can see that the CPI with Food and Energy (blue line) has been much more volatile in recent years than the Core CPI (red line), but food and energy are still major components of the CPI.
Obviously, you aren’t going to buy bedroom furniture and computer software every month, so your individual inflation rate will be somewhat different from the one the government calculated. Still, the numbers are weighted based on how often the average consumer buys these items. So at least you can rest easy knowing that the two things that everyone needs (food and energy) have been included and are weighted much more heavily in the final calculation than bedroom furniture. The BLS Consumer Price Index released every month includes the current weighting of each component. For instance, in November 2021 the BLS calculated that food comprised 13.995% of the average household’s budget. They further calculated that 7.733% was Food at home and 6.262% was food away from home. Energy comprised 7.469% of the average household’s budget and Shelter was 32.425%.
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