The Recession – How Bad Is It: part 3


Okay, back to the recession and the economic numbers.  CPI is widely considered one of the indicators of how well -or poorly- the economy is performing.  So, if you are like me, you may ask:

What is the Consumer Price Index (CPI)?

The consumer price index (CPI) is the most widely used measure of consumer price inflation. The CPI measures the average change over time in the prices paid by urban consumers for goods and services. The Bureau of Labor Statistics (BLS) of the U.S. Department of Labor collects the CPI price information and calculates the CPI statistics.

Thanks to the Seattle Government

So, basically, the CPI is a value showing how inflation is impacting the cost of stuff that you and I buy.  So, let’s take a look:

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2008 0.4 0 0.3 0.2 0.6 1.1 0.8 -0.1 0 -1 -1.7 -0.7

Or, graphically, it looks like this:

cpi-2008Notice that I have changed the graphical representation some.  Most graphs of the CPI show the % change from the month prior, in that case, the graph looks like this:

cpi-raw-2008

Now, the reason that I shifted the data is to show that while the CPI seems to be rising from November to December, what it really is doing is shrinking by a smaller number.  Further, unless you take the data and put it into real world terms, it’s hard to understand.  For example, CPI measure the cost to us of stuff that we buy.  So, if I was in the market for a Digital Picture Frame that cost $100 at the beginning of the year, I could roughly expect the price of that frame to fluctuate according to the top graph.  That is, it would cost more than $103 dollars in the summer, but, then in December, it would be just under $100.

So, in terms of how much stuff costs, right now -latest numbers go to December 08- the cost of goods and services that consumers buy is just under what it was in January 08.  Not bad.

An interesting comparison.  Anyone care to guess what the below graph is tracking?

price-of-gas-2008

If you said the price of gas, you are right.  The above is the cost of gas in cents, and notice just the shape of the graph.  Gentle rise followed by a steeper increase ending with a cliff at the end of the year.  Further, the height of the gas crisis, according to this data, is July.  Yet the height of the costof my picture frame was in August.  I am guessing the price of goods is going to track very closly the cost of getting it from where it was to where you are; shipping costs.

The larger point is this:  The CPI is not showing this current recession to be any worse than any of the data we have seen in the last 60 years.  In fact, just looking at the data we are seeing that the price of “stuff” is getting cheaper!  And that’s pretty good news these days.

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2 comments
  1. sherry said:

    There could be no better investment in America than to invest in America becoming energy independent! We need to utilize everything in out power to reduce our dependence on foreign oil including using our own natural resources. Create cheap clean energy, new badly needed green jobs, and reduce our dependence on foreign oil. The high cost of fuel this past year seriously damaged our economy and society. The cost of fuel effects every facet of consumer goods from production to shipping costs. After a brief reprieve gas is inching back up. OPEC will continue to cut production until they achieve their desired 80-100. per barrel. If all gasoline cars, trucks, and SUV’s instead had plug-in electric drive trains, the amount of electricity needed to replace gasoline is about equal to the estimated wind energy potential of the state of North Dakota. There is a really good new book out by Jeff Wilson called The Manhattan Project of 2009 Energy Independence Now.

  2. pino said:

    Sherry, I agree that in time we are going to have to find another source of energy. I also am convinced that we will. I am equally sure that it will not be the government that finds that “winner.” It will be private enterprise.

    And remember this, for every wind turbine that goes up, there are upset bird lovers and folks who don’t wanna listen to the swoosh of the turbine.

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