Friday, June 13, 2008
Consumer prices soared in May, but inflation remained well contained within the Bureau of Labor Statistics Consumer Price Index (CPI). The Labor Department reported prices rose 0.6 percent in May, paced by a 4.4 percent increase in energy but, on a year-over-year basis, inflation measured just 4.2 percent.
Aside from the euro-area, the U.S. has one of the lowest inflation rates in the world (see The Economist for a handy comparison of inflation rates around the globe).
One of the benefits of an economy that has a disproportionately high level of consumption of non-essential items such as personal computers (down 13% yoy) and audio/video recreation (down 0.6% yoy) is that rising prices for essential items such as food (up 5.1% yoy) and energy (up 17.4% yoy) carry a much lower weight in the inflation calculation.
Of course hedonic adjustments, geometric weighting, and other factors help to keep inflation in the U.S. low also.
What's that? Food prices have risen only five percent over the last year?
Yes, that's right, according to the BLS data.
Does that sound like anyone's experience in the real world?
Here's a cropped version of the most recent BLS data showing the percent change in food prices as of May from last month and last year.
Boy, as nation, we sure eat out a lot - the CPI is weighted almost equally between "Food at home"(up 5.8% yoy) and "Food away from home" (up 4.3% yoy).
It sounds like buying a freezer and stocking it with meat and poultry might be a good idea right about now - those prices have only gone up 2.6 percent over the last year but they'll probably catch up with other food prices before you know it.
By the way, in case you haven't figured it out, this is the way the Labor Department figures Americans spend their food money - almost 15 percent of their overall spending, split almost equally between dining in and dining out.
Is anyone else surprised that we spend more money on fruits and vegetables (1.2% of the overall total) than on cereal and bakery (1.0%)?