Making Good Use of the Consumer Price Index  

            Can the consumer price index be anything but scary? I think so. But we’ll have to get past the headline numbers.

            In the Bureau of Labor Statistics report for October, the most recent available, we were told that inflation in the previous 12 months had been 7.7 percent. Inflation for the month of October was 0.4 percent. Projected for a year, that’s about 5 percent.

            Both are improvements from the peak rate. But they’re still higher than what most people will receive in wage gains and are pretty scary. With September and October both showing 0.4 percent inflation for the month, it’s easy to think that inflation for the coming year will be uncomfortably high.

            Unless…

            Well, there’s always the apocalyptic alternative like a handy and sudden price collapse for home prices. Few will cheer if that happens since more people are homeowners than not.

Can we use the report as a tool, not a scare?

            So, let’s ask another question: Is there any way to use the detailed reporting from the Bureau of Labor Statistics that will be helpful?

            In fact, there is.

            What the index doesn’t consider is that you and I have choices about how we spend our money. We can substitute one thing for another. If something gets uncomfortably expensive, we can look for an alternative. We can price shop.

            Yup, just like we’ve done for centuries. It’s how kerosene replaced whale oil.

            Sorry, searching for substitutes isn’t a cure-all.

            It can, however, be a big help.

            If you are a renter and the landlord increases your rent, there isn’t much you can do, except move. (Which you should consider.) Ditto lots of other expenses. It’s pretty easy to feel trapped.

            We don’t have to be passive victims.

           We have choices. We can look for consumer items that aren’t rising in price and substitute them for the things that have risen uncomfortably. (See table at end of column.)

            So, where are the consumption bargains?

The bargains are in the long, long list in the CPI

            We can find them, quickly, in the complete list of consumer purchases that make up the CPI. It’s a list of over 300 small and large categories that tracks the prices of all the goods and services we buy. (It’s Table 2 in the report.)

            To get my list, I copied the complete list off the monthly consumer price index report and transferred it to an empty Excel page. Then I deleted unnecessary columns. Finally, I did a sort of the entire list.

            The things that had gone down in price were at the top of the list. And the things that had gone up most were at the bottom of the list. To mitigate inflation, the instruction is simple. Avoid the stuff that has risen most in price, favor the stuff that has, if possible, fallen in price.

            Is this altogether too obvious? You bet. But seeing the obvious is the first step toward taking action that will protect us, somewhat, from inflation. Here are some examples.

            Purchases to avoid, reduce or find substitutes for:

            Airline fares, up 42.9 percent, were one of the big inflators.  Fuel oil and other fuels were up 44.2 percent.  Piped gas services were up 20 percent, and gasoline was up 18.1 percent. Health insurance, always a biggie, was up 20.6 percent. Many food products were up nearly 20 percent. Food at home, which includes many individual items, was up 12.4 percent, but food as a whole was up 10.9 percent.

            If you need an excuse for switching, margarine was up 47.1 percent, but butter was up “only” 26.7 percent.

            Lots of inescapable expenses there, but the clear marching order is to stay close to home.

            Purchases to foster:

            Fortunately, there were major bargains at the other end of the list. Some products had actually gone down in price. Smart phones were down 22.9 percent, followed by a 16.5 percent drop in television prices, and a 7.2 percent decline in video and audio products. Internet services and electronic information providers increased only 0.5 percent. With 2023 shaping up to be the Year of the Streaming War, it will be a good year to enjoy the flow of bargains.

            While airfares were up sharply, “other intercity transportation,” “intracity mass transit” and “sports vehicles including bicycles” were up only 1.3 percent, 1.2 percent and 1.2 percent, respectively.

            If thinking about all this is enough to drive you to drink, I’ve got good news. Distilled spirits at home were up only 0.5 percent. Wine at home was up only 3.2 percent, but beer at home was up 6 percent.

            Fresh fruits and vegetables were up 7.4 percent.

            The broad message here is pretty simple: This is a good time to devote ourselves to perfecting our cocoons, buying fresh foods by shopping the perimeter of the supermarket and cooking more at home.

            So, here’s a thought.

            While most of us got bagged for an expensive Thanksgiving turkey (up 16.9 percent), we don’t have to do a repeat performance for Christmas. Or any time in between.

            Uncooked beef roasts are down 5.3 percent. I see a standing beef rib roast in our future, with lots of fresh roasted vegetables (particularly tomatoes, up only 0.9 percent) and paired with a nice Malbec. For dessert: Fresh fruit with a drizzle of Grand Marnier.

            It’s hard work saving money, but someone’s got to do it.

Sources and References:

The Cautionary Tale of Whale Oil:  https://www.theglobeandmail.com/opinion/article-the-cautionary-tale-of-whale-oil/

BLS October 2022 CPI report  https://www.bls.gov/news.release/cpi.nr0.htm

This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.

Photo: Scott Burns

(c) Scott Burns, 2022