Why is energy not included in inflation statistics?

Question

I have an undergraduate degree in business, and this one has long baffled me. Energy is unquestionably an indispensable part of people's daily lives - certainly just as, if not more, important than most of the items in the current CPI. So why has the global rollercoaster spike in energy prices had no apparent effect on inflation statistics? Tell an average American that "inflation for the last few years has been around 1 - 3%" and you'll rightfully be laughed at as on out-of-touch economist.

Answer 1

...and why isn't the cost of cars, college tuitions, food and housing?

Could it be that the inflationary index is bogus?

Answer 2

Because our government does not want us to know the truth -- the true impact of deficit spending for subsidies, socialism and wars...

The politicians and the DemRep parties and the media are studiously avoiding discussion of the collapsing dollar and runaway national debt.  The missing components for CPI calculations help that avoidance.

We've been brainwashed for so many years now that most voters believe there is an "acceptable rate of inflation" because it's "for the greater good".

Answer 3

It's fine to provide a number without energy, or without any of a number of other things people buy that you want to account for separately for a variety of reasons.  The problem is the use of the number in the way you described.  If you tell an average american that core inflation, that is inflation less the following list of more volitile commodities, is [insert the number], they are going to look at you with glassy eyes and say huh?

So the press needs to do some work for once, and be more precise about what they are reporting, and add back in the information needed to make a useful number out of the core number.

I like the thing they do around thanksgiving every year, where they take the same items each year and talk about the overall difference in price, and also discuss which items went up and which went down, and why.

so for the typical american, in the context of daily life, we could have a typical consumption pattern and talk about how it changed in price from year to year.

but inflation measured with and without a variety of items are useful measures for various economic analyses.  they just shouldn't be used as a one size fits all number.

Answer 4

Food and Energy are axed because their prices are too volatile. They would skew any signs of true inflation. When I say true inflation, I mean things like the price you pay for a hair cut at the barber shop. If those prices are rising, the Fed needs to worry. But if the cost of fuel at the pump rises, its impact is ignored until it has an impact on the barber's business.

This is why Food and Energy is ignored when it comes to the CPI.

Answer 5

Core inflation number is what you are referring to.

There are good reasons to exclude from these stats influences that are not coming from inside of the country. We want to measure the effect of activity inside the country.

Now there are also good reasons for having an inflation measure that does include imported inflation. This is particularly true when the country importing is such a big influence on  total demand for imported goods.

So, there are good reasons to know both core inflation and total inflation. Knowing one does not mean we must ignore the other.

One effect of large scale imported inflation is that it takes money out of consumers' pockets so that they can not then stimulate excessive demand within the country. High prices for imports remove steam from the economy, even drag it down a bit, force people to cut prices to get a sale.