From Wolf Street, February 21:
In numbers and charts: The weight changes in the major CPI categories pushed up overall CPI.
There has been a hullabaloo of sorts in certain circles recently about the adjustment of weights for the calculations of the Consumer Price Index (CPI) by the Bureau of Labor Statistics. Swirling around in this hullabaloo were suggestions that certainly the BLS is adjusting the weights to manipulate CPI down and further deceive Americans about inflation. So we’re going to look at the actual weights and numbers and charts, to see how the weights changed in recent years and for 2023. So meet the surprises.
There are about 330 expenditure categories of goods and services that make up CPI. For example, “white bread” is one category, summarizing the prices of many different types and brands of white bread. In this manner, the CPI basket covers just about everything consumers are buying. Each of these goods or services is assigned a weight in the overall index that determines its “relative importance” in the overall index. All goods and services added together have a weight of 100%. That never changes. What changes are the weights of the individual categories, some weights increasing, others decreasing, but the sum always = 100%.
The BLS adjusts these weights based on the changing purchasing patterns by consumers. When consumers spend a larger portion of their total spending on item X than they used to, the weight of Item X increases. Conversely, they will spend a smaller portion of their total spending on Item Y, and its weight is then reduced. The idea is to keep the CPI basket up-to-date with current consumer purchasing patterns, which shift over time.
These adjustments used to be made on a two-year cycle. Starting with 2023, the adjustments of the weights will be made every year to capture shifts in spending more quickly. During Covid, there were massive shifts in the spending patterns, causing mind-boggling distortions in the economy. But because the weight adjustments occurred on a two-year cycle, they initially missed the big changes. So going forward, the adjustments will be made annually, the BLS said.
Here are nine major categories that together account for 83% of overall CPI:
“Rent of shelter,” a high-inflation biggie: weight increased, pushed up CPI.
The weight of “rent of shelter” – a stand-in for housing costs that roughly accounts for one-third of CPI – was increased in 2022. Because the CPI for “rent of shelter” spiked in 2022, the higher weight made the overall CPI worse in 2022. It was then again increased by a much larger amount in January 2023 for the current year.
The weight was increased from 32.05% in November 2021 to 32.42% in January 2022, and to 34.04% in January 2023.
In January 2023, with the CPI for rent of shelter a red-hot +0.8% month-to-month and +8.0% year-over-year, the higher weight made CPI even worse:
Food at home: weight increased, pushed up CPI....
....MUCH MORE
