CPI versus YPI
T.D. Ameritrade's Ticker Tape publication posted an interesting story about "Assessing Your Personal Inflation Rate" which discusses prices of the CPI (Consumer Price Index) versus YPI (Your Personal Inflation). The difference between the two is one's individual spending basket versus the CPI basket. Below is an imperfect yet indicative comparison of the CPI basket and my own YPI:
In our household, we spend a little less on energy, food, meds, and shelter but more on purchases and transport-we live close to stores and we have grands. All in all, we match up pretty close to the government breakdown of personal expenses. Your mileage may vary.
CPI Up 0.4% In February 2021
Below is the reported annual price change by general category. A more detailed breakdown can be found clicking here.
Inflation versus Real Price Change
When prices rise or fall we need to consider the source or cause of the price change. While some call every price change inflationary only a certain class of changes are due to inflation. Inflation is a general price increase. In essence, its a rising tide that lifts all ships and reduces the buying power of a given currency, in our case, the dollar. The price rises but the price of everything else rises too
A real price increase is when a certain good or service becomes scarce and that price rises as compared to other prices. The classic examples include an ounce of gold equals the cost of a man's suit or, classically, Ricardo's "barrel of wine" buys a "bolt of cloth" and vice versa! When buying power rises, when you need two barrels to buy the same bolt, that's a real price increase. For example, a Midwest drought may cause the price of grain to double but nearly everything else, like oil or rent, stays the same.
Not all price changes are inflation, not all price changes are "real". Today's 4% CPI feels like inflation since all of the economy is recovering from Covid but as in everything economic, only time will tell.
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