Components Of The CPI: February 2021

The next chart shows us the annualized rate of change (solid lines) and the cumulative change (dotted lines) in CPI and Core CPI since 2000.

CPI and Core CPI

Consumers, especially those who've managed expenses over several years, are most closely attuned to the top line.

Inflation and Your Household

The universal response is to moan over price increases and take delight when prices are cheaper. But in reality, households vary dramatically in the impact that inflation has upon them. When gasoline prices skyrocket, a two-earner suburban family with long car commutes suffers far more than the metro family with short subway commutes or retirees with no commute. And the pain is even more extreme for low-income households whose grocery money shrinks when gas prices rise. And remember, Uncle Sam excludes energy costs from Core Inflation.

Households with high medical costs are significantly more vulnerable than comparable households with low expenses in this category.

The BLS weights College Tuition and Fees at 1.569% of the total expenditures. But for households with college-bound children, the relentless growth of tuition and fees can cripple budgets. Often those costs get bundled into loans that saddle degree recipients with exorbitant debt burdens. Of course, the Federal Reserve would point out that the right dose of Core Inflation (extended of course to wages) would enable debt-burdened college grads to pay down their loans with inflated dollars.

Which brings us back to the Fed's efforts to manage the level of Core Inflation. At the macro level, the Fed can doubtless make a theoretical case for manipulating inflation. But have their efforts — ZIRP and Quantitative Easing — achieved the desired goal?

Inflation has been tame in recent years and slowly picked up, finally reaching the Fed's target in March 2018, only to drop again with the COVID-19 pandemic. With this new goal of 2% or above, we are well below the goal - as of February, headline CPI is at 1.68% while Core CPI is at 1.40%.

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