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CPI less food + energy

Here's a comparison of the inflation rate for the CPI less food and energy, and the inflation rate for food and for energy. As you can see, rising energy prices by themselves don't seem to lead to higher inflation down the road. Ditto food prices. They will however make the overall CPI more volatile than otherwise. They are noise, statistically, so eliminating them doesn't change the bottom line while making the bottom line easier to see. Go to the BLS charts page and click on CPI vs CPI less food and inflation to see the difference.

 
 

Here is "core" inflation (the CPI less food and energy) versus (i) healthcare services, (ii) new car prices and (iii) apparel prices. On average the latter two have been flat (+0.1% for cars) or falling (-0.3% for clothing). Old houses didn't have closets. New ones have walk-in closets. In contrast over the past 20 years overall "core" inflation has been 2.0% ("headline" everything included inflation has been 2.2%). Healthcare has averaged 3.8%. That means that over the past 20 years "core" prices rose 50%, while healthcare prices more than doubled [compounded 20 times = (1.02)^20 vs (1.038)^20 in Excel]. That makes sense: out of the past 241 months, the prices for healthcare services rose faster than core inflation in all but 4 months.

15 thoughts on “CPI less food + energy

  1. bernsteinl20

    I find it fascinating how much quicker health care costs rise, compared to inflation in the United States for other goods. With the struggles our country has with health care, I wonder how much the rapidly rising costs are causing these problems or if they just pile onto an already struggling system.

    1. Gareth Minson

      Does this mean that if we want economic stability, treating long term root causes of health issues will be a strong solution?
      I think the recent instability in the insurance markets plays with America's ability to hold the dollar constant.

    2. minsong20

      It appears that the instability in the insurance markets affects the dollar. Likewise, health seems vital to our economy.

  2. Mariam Samuel

    I understand the reason for the volatility of the energy trend, and therefore the reason it has been deemed noise, but I am not quite clear on why food has been presumed likewise. Is the trend of the food CPI a result of harvesting seasons/ weather patterns which affect the cultivation of food?

    The rise of medical costs definitely raises a point about the need for accommodation/ aid services to help dampen the effect of these trends on those with incurring medical obligations (both in terms of bills and necessary treatment).

    1. the prof

      This uses seasonally corrected data, so it shouldn't be just fall vs spring. However, there are good and bad years – the recent drought and then rain (which with dry ground turned into localized floods) in California are an example.

  3. dodsonm20

    I am amazed by how closely the the medical care services and inflation rates change. Even though medical care's change is clearly more volatile, they seem to share overall trends. Whereas in the first graph energy is constantly changing but inflation doesn't change at all. It is clear from both graphs that medical care has a far greater impact on the economy than energy and food.

    1. the prof

      Medical care is a big item in consumption, so it of necessity correlates with CPI. The question is whether (statistical) causation runs from the CPI to medical services – a statistical check would be to see whether lagged CPI affects healthcare. And vice-versa.

  4. skinnerf20

    I find the fluctuation in new car inflation to be interesting, particularly the spike from 08 to 09. Would this having something to do with the government bailout of GM and the issues other car manufacturers faced? It seems as though there would be a decrease in demand, and a subsequent decrease in cost, due to the economic strains most people faced during this time.

    1. the prof

      GM didn't go bankrupt until 2009. But the jump in gas prices and then the recession led to a sharp rise in discounting as dealerships struggled to reduce inventory.

      BTW since when is pushing a company into bankruptcy a "bailout"? Now in Chapter 11 bankruptcy a company needs financing to keep in operation - technically DIP (debtor-in-possession) financing. The government provided this and (as typical for a successful Chapter 11) profited handsomely on our behalf.

  5. calihanj20

    I'm not entirely sure why a walk in closet (more demand for clothes) would decrease the price of clothes at least in the short run. To me it seems that would increase prices. Of course, technological advancements could make clothing production cheaper, and while those advancements could be a result of high demand in the long run, it seems puzziling to say that clothing prices decrease because demand increased without going into further detail.

    1. ingramk20

      I think it's rather that because apparel prices decreased, Americans didn't have to spend as much on clothing as a share of purchased goods. They could buy more for a lot less, hence the need for walk-in closets to accommodate our ever-expanding wardrobes. Due to the fact that clothing's relatively cheap now, individuals are just expected to have large and diverse wardrobes. I find it interesting that trends in prices have actually shaped a cultural norm.

      1. calihanj20

        Makes sense. I misunderstood what he meant. I thought he was implying causation from the higher demand for clothes(demonstrated by the increases in quantity and advancements of closets) to the price, rather than what you just explained. Thanks for clarifying.

  6. scottm20

    The steep decline and subsequent spike of the inflation rate for energy between June of 2008 and December of 2009 is clearly evident in the first graph. Taking the 2000s energy crisis and the late 2000s recession into consideration, its easy to contextualize the vast change in inflation rate. The inflation-adjusted price of a barrel of crude oil has historically remained under $25 per barrel. However, during the energy crisis and recession, the price peaked at $147.30 in July 2008. The recession led to a decreased demand for energy in 2008, with oil prices collapsing from the July high to a low of $32 in December 2008. These prices were stabilized by December 2009, evident in the graph. It is interesting to graphically observe the fluxtuations caused by external, macroeconomics variables.

    1. the prof

      And it's even more complicated, because high prices interact with the supply side, too, plus there were exogenous improvements in extraction technology, "fracking" and horizontal drilling.

  7. riversc20

    "Core" prices increasing by 50% in the past 20 years is a shocking, steep statistic, but healthcare prices more than doubling stands out more to me. Healthcare is a difficult market because it is so expensive, while also being a huge necessity for wellbeing, and, for some people, survival. This inelastic demand of healthcare (things like medicine, hospital stays, surgeries, etc) makes it easy for those within this market to jack up prices, knowing people will have no choice but to pay. Thankfully, I do think financial assistance programs have emerged from this price increase to serve those that cannot afford the expenses of being sick on their own dime.

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