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Consumer Prices

Chris Farrell May 27, 2008

Question: i understand that fuel and food prices are not included in the government inflation figures but are included in the consumer spending figures. why? Tommy. Waynesboro, GA

Answer: Energy and food are included in the Consumer Price index. The CPI tracks the average price level in the U.S. Government statisticians pick a representative basket of goods and services that mirrors the spending pattern of the typical household.

The reason you would think otherwise is that many economists strip out energy and food prices to highlight the so-called “core” rate of inflation or core-CPI. (The Bureau of Labor Statistics does it for you when they come out with the monthly CPI figures, too.) Energy and food prices are very volatile, and by taking them out of the equation economists can see better what is happening to prices in the rest of the economy. For instance, despite dramatic increases in food and energy prices it has been tough for many companies to charge consumers higher prices. That lack of pricing power largely reflects and intensely competitive global economy.

Still, when it comes to the strain on our everyday wallets the overall CPI captures what we are experiencing better than the core rate of inflation.

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