How come the CPI (consumer price index), does not include food and energy costs?
Isn’t this the main chart used to measure inflation in the US? How can we measure true inflation without the two main necessities?
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It’s because they are necessities. They are not considered indicators of consumer spending, because people buy them in all economic times.
So isnt that the first place inflation would be felt??
No, because as a consumer’s disposable income increases, they become more likely to purchase luxury items such as entertainment, consumer electronics and jewelry.
For example; the majority of people will not stop heating their homes because they have less spending power, or heat the same home more if their spending power increases. However, they will consider buying a new television if they have sufficient disposable income available to them, and in times of hardship, they will not.
The Consumer Price Index absolutely does include food and energy. It’s just that the Bureau of Labor Statistics also reports an additional index of all goods without food and energy costs included.
http://www.bls.gov/news.release/pdf/cpi.pdf
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