Does The CPI Exclude Food And Energy?

As someone who worked for over a decade as a fixed income analyst, the belief that “food and energy are not part of the CPI” is one that is the hardest to comprehend. Yet, I have seen this stated as fact innumerable times on the internet, most notably on one now-defunct website that claimed to offer the truth about the CPI. (The disappearance of the website helps explain why I cannot offer a link.)

(Note: This is an unedited draft section from a planned inflation primer.)

This has to be the easiest internet myth to debunk. You can just go to the Bureau of Labor (BLS) webpage for CPI: https://www.bls.gov/cpi/. On the day that I wrote this, the headline for the latest report read “CPI for all items rises 0.4% in February as gasoline index continues to rise” (March 2021 release). Gasoline is a source of energy and it raised the all-items CPI. (The all-items CPI is commonly referred to as headline CPI, since it is what is normally discussed in headlines.) The headline will be different by the time you read this, but if you read the press release, the energy and food components are typically discussed. Also, at the time of writing, there is a bar graph of the changes to various item groups, with food and energy being components listed. Meanwhile, any reliable press coverage of the latest CPI release will discuss the effect of food and energy price components on CPI for the month.

Figure: Food and Energy CPI

The top panel of the above chart shows the annual percentage change of the energy component of the CPI, and the bottom shows the food and beverage component. And note that I am far too lazy to make up fake series to cover up for some conspiracy.

How Can This Belief Exist?

I grew up in the 1970s in Canada, and inflation was a big deal. Jokes about inflation even made it into comic books, some of which I had to explain to my kids when they were passed down to them. Meanwhile, the choices for media were limited, and so one heard news reports about inflation. The effect of gasoline or food prices were commonly heard. Even if you were not a fixed income analyst, you knew that food and energy were part of the CPI.

My feeling is that the fragmentation of media as well the collapse in the fascination with inflation by most people is the only way a belief that CPI excludes food and energy can persist. As I will discuss later, there is a plausible route for this belief appearing, but it still takes a general absence of discussion of inflation data for it to take root.

The other thing to keep in mind is that I have only seen this in internet chatter, almost entirely from libertarian sources. It is entirely possible that they write this to yank the chains of the “libs,” although there is also a decent amount of conspiracy mongering. Such thinking did not arise with the internet; the John Birch Society pushed the belief that President Eisenhower (the Supreme Commander of the Allied Expeditionary Force in World War II) was a communist.

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Disclaimer: This article contains general discussions of economic and financial market trends for a general audience. These are not investment recommendations tailored to the particular needs of an ...

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