check my swag

“Why Ice Cream is more Important Than Bacon When Tracking Inflation” by Sarah Chaney, published on April 17th 2017 essentially explains more in depth how CPI really measures inflation. According to Chaney, to explain how critical inflation measure is calculated, the Labor Department in a blog post used bacon and ice cream rather than just an abstract culmination of goods. Of course, the consumer price index contains multiple sub-indexes that cover thousands of goods and services, however it can be confusing to understand inflation when trying the gauge the rise in price of all these goods, so instead, just focusing on two goods can show what the consumer price index is actually measuring (ice-cream and bacon)

According to the article, although CPI can measure services like funeral services to dental exams, the graph depicted reveals simplistically how CPI is measured. In the graph, Bacon swings wildly from over a 20 percent increase in price to a 15 percent drop in price while at the same time the price of ice-cream swings in a less volatile manor and much of the time in the opposite direction. The article then goes on to explain that this is the very reason why the CPI accounts for so many different  items over such a broad range of industries. It is also explained how the importance of those individual changes depends on how much people spend on those items. Therefore, since people spent more on ice-cream than bacon this past year, ice-cream carried a greater weight than bacon when tracking inflation on CPI. Because of this, it is emphasized in the article that sudden changes in consumer demand is largely accounted for in when measuring inflation.

As discussed in class, inflation in the past few years has only been rising at about 2 percent. From a longer term historical perspective this is a relatively low rate of inflation. However, based on the graph in the article it is clear how crucially important it is to account for hundreds and hundreds of different items to come up with a true representation of price increase over time. For instance, based on the graph, in June 2011, if we were to take the price of bacon and ice-cream in those days and determine the CPI based on those two items it would be sky high since an average of 14.15 price change occurred between the two items.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s