why are the costs of food and energy excluded from the inflation rate

One of the biggest problems with including retail food and gas prices in inflation figures is they vary greatly across the nation. In one place gas prices may be lower than others while food prices are higher. In another both are higher. In one a 10 cent increase in the price of a dozen eggs represents a 10% increase. In another that same 10 cent increase is only 7%.

In the case where variability in a measured data set is high, the traditional "average" has no significant meaning. So they use data with lower variability so the resulting statistic has some meaning.
 
Good Luck said:
One of the biggest problems with including retail food and gas prices in inflation figures is they vary greatly across the nation. In one place gas prices may be lower than others while food prices are higher. In another both are higher. In one a 10 cent increase in the price of a dozen eggs represents a 10% increase. In another that same 10 cent increase is only 7%.

In the case where variability in a measured data set is high, the traditional "average" has no significant meaning. So they use data with lower variability so the resulting statistic has some meaning.
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This is true Good Luck, but this is also true with every other item out there...it is an average of goods sold at retail throughout the usa....for example, if the port of entry for the goods to be sold is San Fransisco, and you need to ship them to other california cities to retail them, the retail price would be pne thing compared to you retailing them in stores in Maine....you would have to retail them higher in order to maintain the same initial mark up on your product.

What most multi store, multi state operations do is dollar average the cost of goods including freight and go from there on the mark up for the retail price so that they can have a consistant retail price in all of their individual stores for the main purpose of, cost efficient, connected advertising and marketing.

So, even the price of a sweater in california, in general, is retailed the same in maine, UNLESS A SMALL TOWN MOM AND POP, in maine....he would have to retail the item higher than the multistore guy because the Maine guy does not have stores in california where he can save some money on freight and dollar average them so the retail could be more modest....thus they go out of business unless they focus on selling only locally made items.

In other words the "core inflation" rate already includes the fact that lumber in Maine may be cheaper than lumber in Florida, it takes an average of lumber prices throughout the country...there is no single town in america that would have the precise core inflation rate, it is an average of all towns...they have people that they pay to go in to different stores throughout the country for the same specific item, and record the retails and then they get an average retail and compare it to the previous months average retail and the previous years retail for the month, depending on the report you are looking at.

Care
 
Care4all said:
Damo,

How would gasoline or oil be in the picture twice if the retail sales of it at the pump was counted in with all of the other goods purchased to calculate the core inflation figure?

I understand the freight costs for a product is already calculated in to the markup of the product at retail....in the old days freight ran 1-1.5% of the cost of goods and then a minimum of a 50% markup when the goods hit retail...i am certain freight is a higher portion of the cost of goods than it was 5-10 years ago....but regardless...

my point is that gasoline prices are reflected at retail.....i understand this...and as example let's say the core inflation of goods at retail minus food and gasoline and heating oil prices, is 1% for the month of march.

Then let's presume the price of food and oil/by products has risen 2% for the month of march.

Presume oil and food is 33% of the total usa domestic products purchased here....and it is $1 trillion total, ( for the sake of the argument).

33% of that was sold with an increased retail price of 2%, and 66% of it was sold with an increased retail price of 1%....all of that calculates to a core inflation of 1.33% for the month of march....

To me, this gives a much better perspective to core inflation than saying, "Ok, core inflation is 1% and inflation on gas and food is 2% for the month of march.''

There are other reasons why the price of goods go up outside of gasoline prices...for example, you know I was in the Shoe Industry for decades, we went through a situation where in one year, the cost of leather and labor doubled in Brazil, where we were manufacturing a great deal of the shoes sold in the USA at the time. In one year we nearly had to DOUBLE the retail price of leather shoes....not raise them 10% but raise them nearly 100%....it was scarey as *hit, (but we made it through it and the women still came out and bought their shoes, much less of them, but our retail sales did not take a hit at all, only the units we sold)

My point is, that Leather doubled in price because it became a FAD for Leather Couches and Leather chairs, and a shortage of leather occured for the shoe industry because of stupid leather couches!!! It had nothing to do with transportation/freight fees!!!

so the price of retail goods fluctuate as much for other reasons than just gasoline/oil costs, only on a smaller individual scale....but NONE THE LESS, to me... the two should be combined....the retail sales of the purchases we made for gasoline and heating oil and food, along with the purchases we have made for the gadgets, and clothing from China to give a realistic "core inflation" number....especially with the consistant steady rises year after year with no drastic fluctuations down???

Maybe I am being hard headed on this...? :D hahahaha!

care
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Care,

You are missing my point, and I believe deliberately. I am not saying "this is why we don't" I am saying "this is how we could and still be accurate". Had you read this thread you would know that I was speaking of a new sort of index and working on how you could factor consumer pricing of gasoline accurately without factoring it twice.

If you add the cost of buying gasoline both into the price of things you purchase (it is there, as is the cost of materials, labor, etc. and a bit of profit) then add it back in again it would be inaccurate. What I suggest, if we were to combine both index listings then we would need to separate the gasoline by usage. Not all gas sales would be consumer sales, and those that were not would already be included in the prices we use to factor the inflation level.

Why is this so hard for people to understand? Some gas usage is already factored into the prices of things you buy as part of what it takes to get it to the shelf for you to pick up and carry to the register. Just as the energy used to create that same product is already factored into the price and shouldn't be listed separately on a consumer index.

It is the consumer price index, not the wholesale price index.

Later I said that this is largely worthless. Just report both numbers each time you report and you will have it all factored already without creating an argument that people can't understand, like:

If you buy my product, in order for me to make profit and be able to pay the bills, I must factor in and charge you for the delivery, for the energy I used to make it, and the people that I paid to do it. If you then take the money I paid for gas and energy and factor it in, after I already did into the price of the item you are purchasing, then you are factoring it twice.
 
Care4all said:
This is true Good Luck, but this is also true with every other item out there...it is an average of goods sold at retail throughout the usa....for example, if the port of entry for the goods to be sold is San Fransisco, and you need to ship them to other california cities to retail them, the retail price would be pne thing compared to you retailing them in stores in Maine....you would have to retail them higher in order to maintain the same initial mark up on your product.

What most multi store, multi state operations do is dollar average the cost of goods including freight and go from there on the mark up for the retail price so that they can have a consistant retail price in all of their individual stores for the main purpose of, cost efficient, connected advertising and marketing.

So, even the price of a sweater in california, in general, is retailed the same in maine, UNLESS A SMALL TOWN MOM AND POP, in maine....he would have to retail the item higher than the multistore guy because the Maine guy does not have stores in california where he can save some money on freight and dollar average them so the retail could be more modest....thus they go out of business unless they focus on selling only locally made items.

In other words the "core inflation" rate already includes the fact that lumber in Maine may be cheaper than lumber in Florida, it takes an average of lumber prices throughout the country...there is no single town in america that would have the precise core inflation rate, it is an average of all towns...they have people that they pay to go in to different stores throughout the country for the same specific item, and record the retails and then they get an average retail and compare it to the previous months average retail and the previous years retail for the month, depending on the report you are looking at.

Care
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But the point is does the average MEAN anything? As a mathematical example, say you have 10 items, 9 of them at 11 units and on item at 1000 units, the average of the 10 items is 110 units. Does that average MEAN anything when discussing units per item?

Additionally, even the chain stores factor in transportation costs according to area. For instance, when I retired and moved to Montana I had to significantly cut back on the frequency I eat seafood, because even in the chain stores seafood (even frozen) is quite a bit more expensive than I was used to living in DC.

OTOH, I can get buffalo meat for less than half what it cost in DC, and it is much, much easier to find.
 
Damocles said:
Care,

You are missing my point, and I believe deliberately. I am not saying "this is why we don't" I am saying "this is how we could and still be accurate". Had you read this thread you would know that I was speaking of a new sort of index and working on how you could factor consumer pricing of gasoline accurately without factoring it twice.

If you add the cost of buying gasoline both into the price of things you purchase (it is there, as is the cost of materials, labor, etc. and a bit of profit) then add it back in again it would be inaccurate. What I suggest, if we were to combine both index listings then we would need to separate the gasoline by usage. Not all gas sales would be consumer sales, and those that were not would already be included in the prices we use to factor the inflation level.

Why is this so hard for people to understand? Some gas usage is already factored into the prices of things you buy as part of what it takes to get it to the shelf for you to pick up and carry to the register. Just as the energy used to create that same product is already factored into the price and shouldn't be listed separately on a consumer index.

It is the consumer price index, not the wholesale price index.

Later I said that this is largely worthless. Just report both numbers each time you report and you will have it all factored already without creating an argument that people can't understand, like:

If you buy my product, in order for me to make profit and be able to pay the bills, I must factor in and charge you for the delivery, for the energy I used to make it, and the people that I paid to do it. If you then take the money I paid for gas and energy and factor it in, after I already did into the price of the item you are purchasing, then you are factoring it twice.
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We pay for it twice. Embedded in items and directly in the fuel we purchase ourselves. Are you deliberately missing this point?
 
how about the gasoline we buy for our vehicles to get to work and such.
The propane, heating oil, etc to heat our homes ? Up about 40% over the last 2 years.
This is not freight stuff, this is direct cost of living increase.
 
uscitizen said:
how about the gasoline we buy for our vehicles to get to work and such.
The propane, heating oil, etc to heat our homes ? Up about 40% over the last 2 years.
This is not freight stuff, this is direct cost of living increase.
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Stop "adding it in twice" nutjob!:)
 
I pay it once for it's cost in the products I buy and then I buy the product directly. So I buy it two seperate ways not adding it in twice.
 
AssHatZombie said:
We pay for it twice. Embedded in items and directly in the fuel we purchase ourselves. Are you deliberately missing this point?
Click to expand...
That is my point.

You add in the fuel we purchase ourselves (retail value) but you do not re-add the fuel purchased by the truck driver delivering the item as it is already factored into the price of the item (wholesale value). If you want the actual value to be accurate you cannot add the same thing that is already part of the price of the item you are purchasing.

It is the very point I was attempting to make and you deliberately missed for the entire thread, attempting to continue adding the same value that was already added in.

Of course, food and fuel are already part of one of the reported values and we have no need for this exercise.
 
uscitizen said:
I pay it once for it's cost in the products I buy and then I buy the product directly. So I buy it two seperate ways not adding it in twice.
Click to expand...
No.

When you go to the Hardware store and buy some screws, you do not pay directly for the fuel used to deliver that screw there, it is factored in as part of the price (wholesale usage). You do pay directly for the fuel you used to get there (retail usage).

Can you see the difference?

If we factor all fuel purchasing, and do not factor out the fuel purchased for wholesale usage (already factored as part of the prices of items you purchase) then you factor it twice and create an inaccurate result.

People mistakenly think that I am trying to argue why we don't factor them in at all in one of the reported values, I am NOT TRYING TO ARGUE THAT. I'll repeat this so you can stop attempting to convince me to add the value in. I AM NOT TRYING TO ARGUE THAT THE VALUE SHOULDN'T BE A FACTOR, I AM ARGUING HOW TO FACTOR IT ACCURATELY.

What I am arguing is how we could accurately add in the factor. <-PLEASE NOTE THIS.

Energy would be the same.

If the energy is used to make something, it should not be re-factored into the value, or it should be factored out of the price of the item. If one or the other is not done it is factored twice and skews your results.
 
Nope. "Adding it in twice" reflects it's true impact in our lives. It doesn't skew the results, it properly weights them.
 
AssHatZombie said:
Nope. "Adding it in twice" reflects it's true impact in our lives. It doesn't skew the results, it properly weights them.
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It doesn't. It skews them in the direction you want them to go. You wish to inaccurately stress the cost. If it is already factored in, there is no way to make it more accurate by factoring it in again. It would be like factoring in the cost of steel twice, once where you made it, then what it cost to build the truck that delivered it...

There is no reason to reflect that same cost twice other than to skew the results in a direction you wish for them to go.

As I said, it is because of this inanity that I realized that we don't need to change anything. We have two indicators, they are both reported, one includes these costs, no need to change.
 
Damocles said:
It doesn't. It skews them in the direction you want them to go. You wish to inaccurately stress the cost. If it is already factored in, there is no way to make it more accurate by factoring it in again. It would be like factoring in the cost of steel twice, once where you made it, then what it cost to build the truck that delivered it...

There is no reason to reflect that same cost twice other than to skew the results in a direction you wish for them to go.

As I said, it is because of this inanity that I realized that we don't need to change anything. We have two indicators, they are both reported, one includes these costs, no need to change.
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We pay them in different circumstances. Your way skews the data in your way. Oddly enough.
 
Damo just cannot see the difference between energy costs imbedded in things we buy and direct purchaches of energy. Ie gas to get to work and energy to heat my home.
Give it up AH, He is a Repuvblican for a reason you know.
 
uscitizen said:
Damo just cannot see the difference between energy costs imbedded in things we buy and direct purchaches of energy. Ie gas to get to work and energy to heat my home.
Give it up AH, He is a Repuvblican for a reason you know.
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You are deliberately being obtuse. What I describe IS the difference.

1. If you buy gas to go somewhere it would be factored in, because it is not factored into the price you pay for an item.

2. If you buy an item the gas used to deliver it was factored in, the purchase of that gasoline should not be directly factored in again or it will inaccurately skew the results.

It appears that it is you who cannot understand the difference between direct purchase and indirect cost.

In my version the cost of the gas to get you to work and what you heat your house with would be added, I've said that it would about a million times (yes exaggeration) in this thread alone.
 
I am Stating the issue in a simple manner. You are playing word games.

You made no reference in your post to my increased cost of living from my direct purchases of energy products. Ie heating my home and filling my vehicle.

You just keep divirting to the imbedded in the cost of the prodcut thing.

Well if the cost of heating my home goes up by 20-30% that is a direct cost of living increase no factoring into the cost of a loaf of bread needed there bud.

Play your word games if you want I know what bites my butt.
 
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