11/03/2015

Consumer Prices Completely Flat Year-over-Year

Consumer prices dropped overall in September, according to the latest BLS estimate of the Consumer Price Index (CPI).  The CPI fell by 0.2 %, taking the index back down to the level where it was one year ago.  Think about that: many prices have risen over the past year, but the typical U.S. consumer pays the same amount for goods and services today that she did one year ago.

CPI Graph September 15

The main reason for the decline is decreasing gas prices - again. Gas prices fell by almost 30% in September. In contrast, the food index actually increased by 0.4 %.

Core CPI (the CPI index for all items except than food and energy) is helpful for some applications because it is less volatile.  This measure rose by 0.2 percent.

Basic supply and demand explains the falling price of gasoline why the costs of gasoline. New discoveries of oil and new oil extraction techniques (think fracking) have greatly increased the supply of gasoline, shifting the supply curve outwards and reducing the price of crude oil in world markets. 

The table below shows the one-year price change for selected items, along with the weight given in the CPI index. Remember that the weight is determined as the portion of the typical consumer's budget dedicated to that spending category.  For example, a typical U.S. consumer allocates 3.97 % of their monthly spending toward gasoline.  

CPI table Sep 15

Notice how many food item prices rose significantly (egg prices up another 36 percent!), but gasoline prices fell almost 30 percent.  Television and personal computer prices continue their decades-long slide downward.

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