As I write this, it's October of 2023. There has been a lot of recent conversation on the increasing price of every day goods. But talk is cheap, right? Are prices of every day goods really increasing at a rate that's troublesome for the average family in the United States?
Let's dive in.
I've decided to pick a point in time exactly two years in the past. Right, wrong, indifferent, I don't know. But that's what we're going with. Now, first, we need to define Consumer Price Index. What is it, and why is it relevant for this analysis? According to the Bureau of Labor Statistics, Consumer Price Index (CPI) is: "The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services".
What's in the basket? Again, straight from the Bureau of Labor Statistics site:
* Food and beverages (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks)
* Housing (rent of primary residence, owners' equivalent rent, utilities, bedroom furniture)
* Apparel (men's shirts and sweaters, women's dresses, baby clothes, shoes, jewelry)
* Transportation (new vehicles, airline fares, gasoline, motor vehicle insurance)
* Medical care (prescription drugs, medical equipment and supplies, physicians' services, eyeglasses and eye care, hospital services)
* Recreation (televisions, toys, pets and pet products, sports equipment, park and museum admissions)
* Education and communication (college tuition, postage, telephone services, computer software and accessories)
* Other goods and services (tobacco and smoking products, haircuts and other personal services, funeral expenses)
A pretty extensive list, and maybe it would be fun for people like myself to dive into metrics around each of these items in a future post... However, let's keep it high-level here, shall we?
OK, now we know what the CPI is, and what's in the basket. One more thing to take into account. There is CPI by geography as well. Since I live in the Midwest, I'm going to use that as an example. But to get a truly accurate representation for you, you'll need to look up what CPI is for your geographical location. I just did a google search rather than search the BLS site, and it wasn't overly difficult to find.
In September of 2021, the CPI was $255.71. What does this mean? CPI is compared to a base period, with $100 being the baseline. In the case of the Midwest, 1982-1984 is the base period. This means that the basket of goods in 2021 costs 2.5571 times more than in 1982-84. In September of 2023, the CPI was $285.28. From September of 2021 to September of 2023, this is an increase of 11.56%.
Great, it increased 11.56% in 2 years. Who cares? I'd argue that you should care if your wages didn't increase at least that same amount over the past two years. If your wages didn't increase 12% (or more) over the past two years, that means it's become more expensive for you to live the same life you were living two years ago. Might be a good time to dust off your budget and make sure it's still relevant.
What if there's more month than money in your revised budget? There are always two solutions (make more money, cut expenses), but the first place that I would recommend looking is that non-essential spend. The Starbucks latte 3 times a week, the Netflix, Hulu, and Amazon Prime subscriptions, etc. etc.
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