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Kimberly Amadeo

CPI Reports No Inflation, Despite Rising Gas Prices

By February 21, 2013

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The Bureau of Labor Statistics reported that there was exactly zero inflation in January. In fact, the government survey reported that gas prices dropped 3% from December, and that your trip to the pump cost 1.5% less than last year. This seems contradictory to what everyone else knows -- that gas prices started rising in January, faster and earlier than last year. (For more, see Why Are Gas Prices Rising Again?)

Is the Federal government living in la-la land?Well, I can't answer that question, but I can tell you why the report seemed so out of whack. The BLS surveys 23,000 businesses every month to get the prices of 80,000 items. It's quite likely that the survey went out before gas prices started rising in mid-January.

Similarly, the prices of most other things also remained fairly flat in January. Food prices rose exactly zero percent, while, used cars and trucks rose just .2%, as did the cost of shelter and health care. The biggest cost increases were in clothing, up .8%, and transportation, up .5%.

 

While month-to-month prices give a good indication of where prices are rising, the true measure of inflation is in the year-over-year price increase. The CPI report showed that this measure of inflation was within the normal range. The prices of all items were 1.6% higher than last year, driven mainly by higher food prices (also up 1.6%), transportation (up 2%) and health care services (up 3.6%). In fact, gas prices were 1.5% lower than last January -- the same won't be true in February! (Source:Bureau of Labor Statistics,Consumer Price Index, February 21, 2013)

What It Means to You

In fact, you can probably expect that next month's report will show a 10% increase in gas prices for February. This will make it seem that inflation is out of control. It's not. True, food prices will also go higher, thanks to increased trucking costs. But, gas prices will start to recede by April -- as it does just about every year.

Be on guard against heavy promotion of gold as a hedge against this perceived inflation. Gold prices have dropped 6% since the beginning of the year, thanks to rising stock prices and a strengthening global economy. Gold sellers will use February's CPI report as an excuse to scare you into thinking that the Federal Reserve's quantitative easing has created rampant inflation or even hyperinflation. Gold prices may spike as speculators rush into the precious metal, but will probably return to a downward trend by the summer as oil and gas prices fall.

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Comments

February 25, 2013 at 12:27 pm
(1) ohiodale says:

Real inflation is based on the monthly items ones purchases not the items the government says we purchase. The government replaces items that get too expensive. For example, a brand name item could go up 10% so the government may look for a generic brand that is cheaper. In my household I do not do this because you get what you pay for. People spend money on taxes, housing, car payments, food, gas, utilities, clothes, and miscellance expenses. Probably ranks from highest to lowest in this order besides maybe swapping the car and food. All expenses should be weighted. For example if 50% of your income goes towards your house than if housing goes up 2 percent, this translate into a 1% increase. 50% times 2%. Calculate your own inflation and I bet prices have increased by double digits over the last year.

February 26, 2013 at 12:46 pm
(2) beekay says:

amen brother! you hit it on the head. i agree with you 100%
thank you.

February 26, 2013 at 12:47 pm
(3) Steve says:

The government doesn’t figure in food and energy in the phony statistics they put out it’s all smoke and mirrors. Amazing that the author of the article can actually cite the government statistic of 0% inflation for food with a straight face.

February 26, 2013 at 4:22 pm
(4) Jeff says:

Awesome Ohiodale!
How many people understand this underhanded calculation that effects income at so many levels? Is this ‘government substitution’ taught in economics classes yet?

February 26, 2013 at 4:27 pm
(5) Barry says:

The CPI numbers are not the only ones cooked up by the Obama administration. They (and other administrations) take great advantage of a loophole that exists when calculating the unemployment rate. Only unemployed people who draw unemployment benefits are counted as unemployed; unemployed people whose benefits have expired (and can draw no more) are no longer counted as “unemployed”–they are now counted as (and considered) “no longer seeking employment”.

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