An Interesting Look At Inflation

[RockOn]

Originally Posted by Hamlet

Your expenses are not typical for American families as a whole.

The increase in your college costs is approaching half of your listed inflation. While this is a dramatic increase in your expenses, it isn't representative of most families. Many families have no children. Of the families that do have children, most of them are not currently college age. If they have one child, they have 4 years out of about 50 where they are paying for college, assuming that their child does go (many don't).

How many gallons of gasoline do you use a year to get an $1800 increase? Gas in my neck of the woods is about $3.50. Last year this time it was about $2.80. I figure my wife and I use about 1200 gallons a year, giving us an increase of increase of $840. We both have a moderate commute to work.

Your property tax increase is not typical, at least in my area. I have a pretty average house in a suburb of Minneapolis, and my taxes went up about 10%, from about 2200 to 2400. $200/year is not going to affect my personal rate of inflation very much. You must have an expensive home or live in a high property tax state.

I agree my expenses were not average last year, I was just making a point that a 4% increase in CPI isn't a huge amount of money for an average family. It is even much less money at the 2-2.5% rate they have been reporting for the last 4 years or so.

On college, remember that it's much more than 4 years to pay for college. Most families have to save or pay back loans for up to 18 years. It is not a minor cost and families with kids going to college are not a small minority. (For most, it probably doesn't come all in one year (the $3000) as I paid, but the % increase is still there either in the savings rate or loan repayment bill.)

On gas, it was only approxiate but we put about 32k miles on two cars, at about 18MPG and about a $1 increase per gal, that's about $1800/year. I know many people that drive more than we do.

On property tax, I said this wasn't a normal increase but my taxes did go up $1000. Our house is pretty expensive but our prop tax rate is very low. The increase was due to increased assessed value. Maybe I can get it back next year.

[Independent]

Originally Posted by RockOn

On college, remember that it's much more than 4 years to pay for college. Most families have to save or pay back loans for up to 18 years. It is not a minor cost and families with kids going to college are not a small minority. (For most, it probably doesn't come all in one year (the $3000) as I paid, but the % increase is still there either in the savings rate or loan repayment bill.)

"families with kids going to college are not a small minority"
In 2005, there were about 18 million college students at all levels (including graduate school and 2 year schools). This compares to about 111 households. If nobody had two kids in college at the same time, that would be 16% of households have a college student and 84% don't.

You guessed something a lot higher than 16%, because you have kids in college and you know a lot of people with kids in college, and you're assuming that you are roughly average.

See table 1 at: http://nces.ed.gov/pubs2007/2007154.pdf
and United States - General Demographic Characteristics: 2005

Yes, some people save for college, others borrow. For those people, a $3,000 increase in tuition is much less than an additional $3,000 annual cost, because they are spreading the cost across more years. If you want to talk about how much college costs impact families that save/borrow, you need to divide the increase by the number of years they use for spreading their cost. (The BLS simply does "price", regardless of whether people save or borrow to pay for it. This works for a "price index".)

On gasoline, the average price per gallon in Colorado went up 62 cents from April to April (Colorado Fuel Price Update - AAA Colorado - Press Release). The national average increase was 65 cents.
Average miles traveled per car was 12,400 in 2006 (BTS | Table 4-11: Passenger Car and Motorcycle Fuel Consumption and Travel
I'm sure you know people who drive more than you do. However, there are a lot more people who drive less.

Once again, the issue isn't whether your personal COL has gone up faster than the CPI, it is whether you are pretty close to average.

[RockOn]

Originally Posted by Independent

"families with kids going to college are not a small minority"
In 2005, there were about 18 million college students at all levels (including graduate school and 2 year schools). This compares to about 111 households. If nobody had two kids in college at the same time, that would be 16% of households have a college student and 84% don't.

You guessed something a lot higher than 16%, because you have kids in college and you know a lot of people with kids in college, and you're assuming that you are roughly average.

See table 1 at: http://nces.ed.gov/pubs2007/2007154.pdf
and United States - General Demographic Characteristics: 2005

Yes, some people save for college, others borrow. For those people, a $3,000 increase in tuition is much less than an additional $3,000 annual cost, because they are spreading the cost across more years. If you want to talk about how much college costs impact families that save/borrow, you need to divide the increase by the number of years they use for spreading their cost. (The BLS simply does "price", regardless of whether people save or borrow to pay for it. This works for a "price index".)

On gasoline, the average price per gallon in Colorado went up 62 cents from April to April (Colorado Fuel Price Update - AAA Colorado - Press Release). The national average increase was 65 cents.
Average miles traveled per car was 12,400 in 2006 (BTS | Table 4-11: Passenger Car and Motorcycle Fuel Consumption and Travel
I'm sure you know people who drive more than you do. However, there are a lot more people who drive less.

Once again, the issue isn't whether your personal COL has gone up faster than the CPI, it is whether you are pretty close to average.

There are a lot more than 16% of families that either have a kid in college, are saving for college, or have kids through with college where they are still paying off HELOC loans (for instance). Have you looked at PLUS loan interest rates lately? It's not like when we were kids, rates start at about 8 1/2% and there is no free period, loans accrue from day one. Middle class families get very little help these days. (If you are saving $200 a month (based on using reported CPI for the rate of expected increase) and college costs actually go up 25% in two years, I think you'd need to save more than $250 a month to catch up, that's 25% plus more for that item in your budget.) My guess is that around 50% of families are affected by increased college costs. You can nail it to the exact percent if you like.

On gas, I assumed a $1 increase and you found 62 cents using April to April, sorry. I don't remember exactly when the recent 100% plus increase took place. I'm not being exact, let's just say it's going up about 25% a year for 4 straight years, about 6 or 7 times the reported CPI-U. nmber. On how much I drive, I'd say close enough. I'd use more gas than I do right now if I owned an Ford Explorer. $1800 for a family might be slightly overstated, but many families have more than 2 cars and get less than 18MPG on average. There are people commuting much farther than I do. I don't think an average of 12,400 miles per year per car reflects an active average family. There are a lot of cars just sitting around which are included in the average.

I do think I should be considered close to average. I seemed to hear somewhere about the importance of family values. Isn't America about what happens to families anymore?

I noticed you didn't answer whether "things are different now", or "the BLS didn't/doesn't know what it is doing"? Maybe you missed that?

[Independent]

First, you wanted a response on post #120. You're saying, (1) let's assume that Williams is accurate on the current difference between the old method and the new method, (2) let's assume that the current difference is also the difference that would have shown up in the 70's, and (3) let's assume that the new method is "right". Does that mean the old method seriously overstated inflation in the 70's? Based on all three of those assumptions, yes.

Please note that I don't believe (1), and even Williams doesn't claim (2). I went back to his website to see how much difference he's claiming between the old and new methods. I couldn't find any claims regarding the difference between the old and the new in the late 70's.

While looking around, I re-read this piece Shadow Government Statistics » Blog Archive » 4. Consumer Price Index which clearly states a difference of 7% in 2004. But I noticed that the graph on today's home page has a difference in 2004 looks like 2.5-3.0%. That's a huge difference. Has Williams dramatically changed his calculations?

I suggested once that maybe the differences that Williams claims come from a big difference in the treatment of owner-occupied housing and a small difference on everything else. Since the housing bubble is relatively recent, the differences he gets will vary quite a bit over time. I'm just guessing here, but since he won't share sample calculations, nobody can do anything but guess.

You also say:

I do think I should be considered close to average. I seemed to hear somewhere about the importance of family values. Isn't America about what happens to families anymore?

It seems to me that you're saying the BLS should design the CPI-U so that it emphasizes the expenses of above-average income couples with teenagers. For some reason, they are "more important" than median income, childless, 20-somethings. I think that the CPI-U is designed to reflect an "average" that includes many types of "families" in reasonable proportion to their prevelance. Obviously, if you think they are trying to measure the wrong thing, you're likely to disagree with the final numbers.

[kcowan]

The fundamental fact is that CPI is representative of a whole nation. When it breaks down for individual demographics, then the effect of inflation will be hurtful if people in those demographics have sources of income are geared to the average CPI.

Isn't this why some seniors on pensions resorted to dog and cat food?

[ladelfina]

Just saw this linked at The Big Picture:

All of Inflation’s Little Parts - The New York Times

I love the part where fuel oil is .2% of spending.

Enjoy!!!

[Notmuchlonger]

Originally Posted by ladelfina

Just saw this linked at The Big Picture:

All of Inflation’s Little Parts - The New York Times

I love the part where fuel oil is .2% of spending.

Enjoy!!!

According my sister her and my b-law paid 2500 to 3200 this/last year for fuel oil. That is off a 200000 or so income. About 1.5 percent? Ya not buying that .2% either Then again they live in a huge old house that probably isnt well insulated. Thats another can of worms.

[mb]

Originally Posted by Notmuchlonger

According my sister her and my b-law paid 2500 to 3200 this/last year for fuel oil. That is off a 200000 or so income. About 1.5 percent? Ya not buying that .2% either Then again they live in a huge old house that probably isnt well insulated. Thats another can of worms.

I think that this is very much a regional thing. It may sound incorrect if you live in New England but in the west for example almost no one uses fuel oil for heating so there are a lot of zeros going into that average. I am 51, have lived in seven different houses in three different states on the pacific coast, in the middle Atlantic and in the Rockies and have never spent even a single penny on fuel oil.

MB

[ladelfina]

fine, mb.. but the vast majority have heating costs of SOME kind..
Fuel oil .2%
Propane and wood are lumped together at .1%
Piped gas is 1.1%
ALL electric is 2.8%

Does it really sound logical that all US home heating costs + electricity is 4.2% of consumer spending?
It doesn't to me... that sounds tiny.

Cable is 1.2%.. do people really spend 1/3 as much on cable as on all heat + electric!?!?
What-evah...

[RockOn]

Originally Posted by ladelfina

Just saw this linked at The Big Picture:

All of Inflation’s Little Parts - The New York Times

I love the part where fuel oil is .2% of spending.

Enjoy!!!

Great chart

I find it interesting that my health insurance premium has gone up 10% a year for about 10 years now (it seems), and at the same time they raise my deductable and copays, yet an average of all 10 health catagories (not weighted) is 3.8%. Now explain that one to me Independent! I'm sure you can find some stats that show my premiums only went up 75.439% or so.

All of health care is 6%? Not at my house, my premiums alone are about 20% (I pay 1/2, I suppose that is what they count) of an average families income, not to mention all the other medical costs not covered which is probably another 5% (copays, deductables, dental work) on a typical families income.

Also look at the huge housing component. As house prices doubled and tripled, they use some obscure rent increase. It's obviously a rigged game and most of us know it.

On the 0.2% spending on fuel oil, notice how "clocks, lamps, and decorations" were 0.3% spending. "Other Linens" were 0.2%. It's all a terrible joke.

College is up 6.1% but I paid a 12% (average) increase each of the last two years.

"Other Motor Fuel" gets 0.3% of spending ...tell it to the truckers.

[ladelfina]

RockOn, to be fair the truckers aren't paying for fuel as a personal consumption item. Maybe that figure is fuel for boats and such?
(I agree w/you otherwise.. maybe people are using clocks, decorations, and linens as a combustible heat source.)

[RockOn]

Originally Posted by ladelfina

RockOn, to be fair the truckers aren't paying for fuel as a personal consumption item. Maybe that figure is fuel for boats and such?
(I agree w/you otherwise.. maybe people are using clocks, decorations, and linens as a combustible heat source.)

On truckers, I thought of that after I posted. There are a lot of family owned independent truckers. I suppose the fact they pay $1000 to fill up once really doesn't count in official CPI-U since trucking families are not average, but they are likely in trouble because of rising costs. Those families probably see the cost of diesel for their truck as a budget item and when it goes up, they see that as serious inflation.

Some people have vehicles that run on diesel, ethanol, and there are some hydrogen vehicles. Diesel is about $4.50 a gallon now.

[d]

Originally Posted by RockOn

the 0.2% spending on fuel oil, notice how "clocks, lamps, and decorations" were 0.3% spending. "Other Linens" were 0.2%. It's all a terrible joke.

knowing how facts might get in the way, it might nonetheless be useful to note that for 2006 personal consumption expenditures totaled $9.2245 trillion while pce for "fuel oil and coal" totaled $21.6 billion: yep, that's .2%

[mb]

Originally Posted by ladelfina

fine, mb.. but the vast majority have heating costs of SOME kind..
Fuel oil .2%
Propane and wood are lumped together at .1%
Piped gas is 1.1%
ALL electric is 2.8%

Does it really sound logical that all US home heating costs + electricity is 4.2% of consumer spending?
It doesn't to me... that sounds tiny.

Cable is 1.2%.. do people really spend 1/3 as much on cable as on all heat + electric!?!?
What-evah...

Ladelfina,

4.2% doesn't strike me as obviously wrong but I would assume that much of the electric usage is for things other than heating of course and a lot of it is probably for air conditioning.

Let's look at the numbers.

I will assume that only half of electric goes to heating this makes it 2.8% rather than 4.2%. The median household income is about $50k (this is one instance where it is theoretically correct to use average which is a larger value rather than median but I found median first) so assuming that you only heat for 6 months a year gives a monthly heating cost of $233/month assuming that my calculations are correct.

This may not be enough for a January in New England according to some of the posts I have read on this forum but again it doesn't strike me as being an obviously wrong answer for the country as a whole. If you have other information let me know.

With regard to the relative costs for cable, since I don't subscribe to cable I don't have a clue.

MB

[RockOn]

Originally Posted by d

knowing how facts might get in the way, it might nonetheless be useful to note that for 2006 personal consumption expenditures totaled $9.2245 trillion while pce for "fuel oil and coal" totaled $21.6 billion: yep, that's .2%

and the point is.... you lost me.....are you saying consumers spent $21.6 billion on "Other Linens", and $32.5 billion on "Clocks, Lamps and Decorations" at the same time they spent $21.6 billion on Fuel Oil?

[clifp]

Originally Posted by ladelfina

Cable is 1.2%.. do people really spend 1/3 as much on cable as on all heat + electric!?!?
What-evah...

My cable bill (includes high speed internet) on some month exceeds my electricity typically electricity is $20 more. My mom who lives in Oregon (so she has heating cost electric+wood) her cable bill (internet+phone) is roughly 2/3 the cost of electricity.

[clifp]

Originally Posted by RockOn

and the point is.... you lost me.....are you saying consumers spent $21.6 billion on "Other Linens", and $32.5 billion on "Clocks, Lamps and Decorations" at the same time they spent $21.6 billion on Fuel Oil?

I own the largest propane and fuel oil distributor in the country American Propane APU it has 10% market share and revenue of 2.4 billion. So 21.6 billion sounds spot on. I also own a smaller competitor SPH has revenues of 1.46 billion.

BTW, the both have distribution yield of above 7% and increase 5% year (faster in SPH's case)

[cute fuzzy bunny]

My cable bill is 1/4 of my electric bill on average. If you roll my cable and satellite bills together, maybe half.

That heating oil thing in the