Quote:
Originally Posted by The_Dunedan
*Funny how the costs of food, fuel, and electricity don't get used to compute inflation. They're the three things everybody essentially -must- have, and they're the three things which have suffered the greatest price inflation over the past five years. Nothing like being able to leave out data which makes you look like a lying sack of frogshit!
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At the risk of a threadjack, there is a good reason for it. (And it isn't really a secret that they leave these things out of core CPI calculations.)
First, there is a difference between a more generic CPI vs. "core CPI," which excludes the above-mentioned items.
The main thing is that commodities tied into food, energy, and fuel are highly volatile, and the prices are rigidly tied into globalized situations. To include them into the core CPI measure to track inflation would mask other problems, namely, the deflation of more stable prices, which include the bulk of everything else.
To include food, energy, and fuel prices in the CPI could hide the fact that other prices are deflating. One concern amongst economists right now is that deflation could kick into a downward spiral, meaning that prices will drop, production will drop, wages will drop, forcing prices down further, and it continues.
If we included the inflated prices of food, energy, and fuel, the overall measure of inflation might point central banks in the direction of rising interest rates. A raise in rates would put a damper on spending and therefore the economy.
Why do you think interest rates are so low right now? Nobody's spending. Raising the rates (one of the main ways to fight inflation) would make that worse, as the cost of borrowing money to spend would become more expensive, i.e. borrowing money and making mortgage payments becomes more expensive, also, it increases the incentive to save.