ziggy29
Moderator Emeritus
For what it's worth, I think the CPI grossly understates "real" inflation people who primarily buy the basic essentials have been feeling for years. But I'm not sure this doesn't overstate it:
The EPI Reflects Basic Economic Change | AIER
And:
And finally:
The EPI Reflects Basic Economic Change | AIER
One of the biggest problems is what to do with housing. It's easy to deal with for renters (just track the changes in rents for the same property over time), but once most people buy a property their "price" for housing is more or less fixed for many years. So when falling housing prices make the CPI shrink, the people who already own homes aren't seeing their own housing expenses fall at all (apart from falling adjustable rate mortgages, perhaps).To address this, we have revised the Everyday Price Index to allow for constantly adjusting weights. Weights are simply the proportion of your total expenditure that you spend on each good or service you purchase each month. Dynamic weights allow for day-to-day changes in consumer behavior related to price changes. This weighting results in a 2011 average annual inflation rate of 8 percent as measured by the Everyday Price Index, compared to a mere 3.1 percent from the CPI.
And:
Yeah, the bold-face is, I think, what most people are feeling. The unsettling thing that the price of "everyday" stuff seems to be inversely correlated with wage growth over the same time -- the less wages grow, the more food and energy prices (especially) seem to rise.Chart 1 on, right, shows that the CPI and EPI trended closely until around the early years of the last decade. (Both indices are set to 100 in January 1987 to ease comparison.) After 2002, the prices of everyday goods and services began to increase faster than the overall price level, becoming much more volatile.
From January 1987 to December 2011, the CPI roughly doubled: it increased from 100 to 202.9. During the same time, the EPI increased substantially more—from 100 to 234.5. This translates into an inflation rate of about 2.9 per year on average for the CPI and 3.6 per year on average for the EPI.
And finally:
Sure feels that way. Biflation -- yuck.Prior to 2002, CPI inflation may have been a reasonable approximation for the price increases people faced in their everyday purchases. But this is no longer the case.
This means that indexing various payments—Social Security benefits, for example—to the increase in the overall CPI no longer adequately compensates recipients for rising everyday costs. This has the strongest impact on individuals who rely on fixed incomes from savings or Social Security. These people need to plan for essentially uncontrollable changes in everyday costs.