The everyday price index
Date posted: April 10, 2012
Measuring changes in inflation or the cost of living is a big job. It shouldn’t be surprising, then, that there are a number of competing measures, including the everyday price index. Just what is it? N.C. State University economist Mike Walden explains.
“Well, this was developed by a think tank called the American Institute of Economic Research. … And what they have done is they’ve said, ‘Look, households really you can divide their spending into two parts: Those parts that are fixed; that is to say, the payments each month are not going to fluctuate each month — like your mortgage payment or, if you rent, your rent payment, or a payment on a car loan. But then you have another part of your expenses that do fluctuate — food prices, energy prices, obviously.’
And what this group did is they focused on those fluctuating prices, since their argument is that’s really where people get their sense of how prices are changing. They sort of take it for granted that their rent’s not going to change — their mortgage loan payments are not going to change.
“And when you focus on those fluctuating prices, you do see that they have been running in terms of their rate of change much higher — much faster increases than all other prices.
“In fact over the last year this index of fluctuating prices, which the American Institute of Economic Research calls the everyday price index. has been going up between 5 and 10 percent on the annualized basis, whereas if you look at a broader measure of inflation it’s been going up around 2 percent.
“So, I think this is one reason why people are somewhat skeptical when they hear the government report, ‘Hey, the inflation rate’s only 2 percent.’ When people focus on just those prices that they see changing on a regular basis, the inflation rate that they observe is much, much higher.”
Category: Economic Perspective