The Consumer Price Index (CPI) includes the prices of a wide range of goods and services that are purchased by urban households for consumption. This "market basket" includes items like food, housing, apparel, transportation, medical care, recreation, education and communication, and other goods and services. It also includes taxes directly associated with the purchase of specific goods and services, like sales and excise taxes.
Here's a more detailed breakdown:
Broad Coverage: The CPI aims to represent the overall cost of living for the average urban household, encompassing a wide variety of goods and services.
Major Categories: These are broad groupings of consumer spending: food and beverages, housing, apparel, transportation, medical care, recreation, education and communication, and other goods and services.
Specific Items: Within those major categories, the CPI includes specific items like furniture, clothing, electricity, gas, and various food items.
Taxes: Directly related taxes on goods and services, such as sales and excise taxes, are included in the CPI.
User Fees: Fees charged by governments for services like water and sewage, as well as vehicle registration fees and tolls, are also part of the CPI.
Exclusions: The CPI excludes investment items like stocks and bonds, as well as income and Social Security taxes, and the value of home-produced goods.
Homeownership: The CPI includes a measure of the cost that homeowners implicitly pay in the form of "owner's equivalent rent," essentially estimating what it would cost them to rent their homes.
What is included in the CPI ?
The Consumer Price Index (CPI) includes a wide variety of goods and services that represent the spending patterns of urban consumers
The
Bureau of Labor Statistics (BLS) classifies these items into eight major
groups:
1.
Food
and beverages: This includes things like groceries, snacks, and meals at
restaurants.
2.
Housing: This
is a significant component and encompasses rent (both for renters and the
implicit cost for homeowners), utilities, and household furnishings.
3.
Apparel: Clothing,
footwear, and accessories are all part of this category.
4.
Transportation: This
includes the cost of purchasing new and used vehicles, gasoline, airline fares,
and motor vehicle insurance.
5.
Medical
care: The CPI tracks prices for prescription drugs, medical supplies,
physicians' services, hospital services, and more.
6.
Recreation: This
covers items like televisions, toys, sporting equipment, and admission fees to events
and venues.
7.
Education
and communication: College tuition, postage, telephone services, and
computer software are included here.
8. Other goods and services: This category encompasses things like tobacco products, personal care services (e.g., haircuts), and funeral expenses.
Important
Exclusions:
· Investment
items: The CPI focuses on consumption, so it excludes items purchased for
investment purposes, such as stocks, bonds, and real estate.
· Income and Social
Security taxes: These are not directly related to the purchase of consumer
goods and services.
· Illegal goods and
services: Due to data collection difficulties, these are excluded.
· The value of home-produced items: The CPI concentrates on market transactions.
The
"market basket" of goods and services used to calculate the CPI is
based on consumer expenditure surveys and is updated periodically to reflect
changing spending habits. CPI data collectors gather information on the prices
of thousands of items each month to track changes over time. The percentage
change in the CPI over time is used to measure inflation.
https://www.google.com/search?q=what+is+included+in+the+cpi
Was the CPI Underreported
Whether the Consumer Price Index (CPI) was "underreported" in 2021-2024 is a subject of debate. While official CPI data showed a downward trend after a peak in 2022, some sources suggest that these figures may not fully capture the real inflation experienced by consumers.
Arguments
for potential underreporting:
· Subjectivity in CPI
Calculation: Some argue that the methods used to calculate CPI have become
more subjective, potentially leading to a less accurate reflection of price
increases.
· Exclusion of Asset
Inflation: The CPI primarily focuses on a basket of consumer goods and
services and does not account for asset inflation (e.g., in stocks or real
estate), which can impact individuals' overall financial well-being.
· Substitution
Bias: The CPI traditionally assumes a fixed market basket of goods and
services. Critics argue that this doesn't fully capture consumers substituting
lower-priced goods when prices of other items rise.
· Quality Change Bias: Concerns exist about whether the CPI adequately accounts for changes in the quality of goods and services, which can affect their real cost.
Evidence
supporting the accuracy of official CPI data:
· Moderating
Inflation: Official CPI data from the Bureau of Labor Statistics (BLS)
shows a decline in the inflation rate after a peak in 2022. For instance, the
CPI for All Urban Consumers (CPI-U) increased 2.4 percent for the 12 months
ending May 2025, after rising 2.3 percent over the same period in April.
· Broad-based Inflation
Declines: The decline in inflation has been broad-based across various
categories, including a decrease in core inflation (excluding food and energy).
· Real Wage Increases: While real wages (wages adjusted for inflation) initially declined in the early part of the 2021-2024 period, they have shown periods of gradual increase as CPI inflation moderated and wages continued to grow.
In
summary:
While official CPI data suggests a moderation in inflation during the 2021-2024 period, debates persist about whether these figures fully reflect the price increases experienced by consumers. Concerns include the subjectivity of calculations, the exclusion of asset inflation, and potential biases related to substitution and quality changes. However, the documented declines in CPI and core inflation, alongside periods of real wage increases, provide evidence that inflation has eased since its peak in 2022.
Was the CPI underreported in 2021 to 2024 ?
During the period of 2021 to 2024, there were discussions and critiques surrounding the accuracy of the Consumer Price Index (CPI) as a measure of inflation
Concerns about potential underreporting of inflation stemmed from discrepancies between the official CPI numbers and the perceived increases in the cost of essential goods and services like housing, rent, and food. Some argued that items such as housing/rent, food, insurance, and gas became significantly more expensive than reflected in the CPI data. One source points to a Reddit post that suggests these categories increased by around 30% during 2020-2023, while the official compound inflation rate for that period was around 20% according to the CPI.
Several
factors contribute to the challenges of accurately measuring inflation through
the CPI:
· Substitution
Bias: The CPI uses a fixed basket of goods, which doesn't account for
consumers switching to cheaper alternatives when prices rise.
· Quality/New Goods
Bias: The CPI struggles to capture improvements in product quality or the
introduction of new goods, potentially understating the true cost of living.
· Point of Sale Bias: The CPI primarily collects data from physical stores, potentially missing lower prices available online.
Other
factors to consider:
· Alternative inflation
measures: The Personal Consumption Expenditures (PCE) price index, the
Federal Reserve's preferred inflation gauge, has shown different results
compared to the CPI, leading some to question the CPI's accuracy.
· Methodological changes: The Bureau of Labor Statistics (BLS), which calculates the CPI, has made revisions to its methodology over time to address biases and improve accuracy.
It is important to note: While the CPI may have limitations and challenges in accurately reflecting the nuances of inflation, it is still considered a crucial economic indicator. It is essential to understand the different factors that can influence its measurement when interpreting inflation data.
In conclusion, concerns about potential underreporting of inflation in the CPI between 2021 and 2024 exist, driven by perceived discrepancies between official numbers and everyday expenses. However, the challenges in accurately measuring inflation through the CPI due to factors like substitution bias, quality/new goods bias, and methodological differences are important considerations.
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Comments
The “cumulative” CPI was used to track “real inflation” in the US from 2021 to 2024. This added the “inflation % for each year. Inflation was Global. Countries reported inflation from 20% to 40%.
Norb Leahy, Dunwoody GA Tea Party Leader
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