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FACTS ON POLICY: Consumer Price Index September 2, 2008
During the early summer of 2008, energy prices accounted for at least 50 percent of the overall increase in the consumer price index. The consumer price index (CPI) is a government indicator that measures the cost of a “market basket” of goods. It is used to track the cost of living and measure inflation. There are several variants of the CPI; the most commonly used is the CPI for all goods for all urban consumers, and represents the spending patterns of 87 percent of the U.S. population. The seasonally adjusted CPI for urban consumers increased 5.6 percent between July 2007 and July 2008. This is the highest annualized increase since 1991and more than double the Federal Reserve’s implicit annual inflation target rate of 1.5 to 2.0 percent. Although the CPI growth rate earlier in 2008 was not unusually high, in June and July 2008, it increased at higher-than-average rates: in June, the CPI went up 1.1 percent from the previous month; in July, the monthly increase was 0.8 percent. By contrast, for the past ten years the average monthly increase has been roughly 0.2 percent. Aside from a 1.3 percent CPI spike in September 2005 in the aftermath of Hurricane Katrina, the CPI has not risen so fast in a month since 1990. Energy prices, which rose 4.0 percent in July 2008, accounted for half of this increase. Energy prices increased 29.3 percent over the past year (July 2007–July 2008). Food prices, which went up 0.9 percent in July 2008, were also a big contributing factor to the overall CPI increase. Excluding food and energy prices, the CPI increased 0.3 percent in July 2008, which is comparable to monthly data from the past ten to fifteen years.
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