The government agency with the responsibility of calculating the CPI is the Bureau of Labor Statistics. This is how it works out the changing price of cheese:
“A particular item enters the CPI sample through a process called initiation. This initiation process, typically carried out in person by a CPI data collector, involves selecting a specific item to be priced from the category that has been designated to be priced at that store. For example, suppose a particular grocery store has an outlet where cheese will be priced. A particular type of cheese item will be chosen, with its likelihood of being selected roughly proportional to its popularity. If, for example, cheddar cheese in 8 oz. packages makes up 70 percent of the sales of cheese, and the same cheese in 6 oz. packages accounts for 10 percent of all cheese sales, and the same cheese in 12 oz. packages accounts for 20 percent of all cheese sales, then the 8 oz. package will be 7 times as likely to be chosen as the 6 oz. package. After probabilities are assigned, one type, brand, and container size of cheese is chosen by an objective selection process based on the theory of random sampling. The particular kind of cheese that is selected will continue to be priced each month in the same outlet.
“This item will be repriced, monthly or bimonthly, until it is replaced after four years through sample rotation. Repricing is usually done in person, but may be done via telephone or the internet. The process of selecting individual quotes results in the sample as a whole containing a wide variety of specific items of a category roughly corresponding to consumer purchases. So the cheese sample (or the new vehicle sample, the television sample, etc.) contains a wide variety of styles and brands of cheese, vehicles, televisions, etc.”
And that’s just cheese. Now scale the same process, with the same level of detail, complexity and wonkery among all the items bought by a typical consumer — pausing for a moment to chuck a large concealing tarpaulin over all the questions prompted by the idea of a “typical consumer.” We’re talking about not dozens or hundreds but thousands of possible items — and not just in one place but all over the country. Not just canned tuna and breaded fish sticks, cornflakes and granola bars but all types of bread and tortillas and rolls (including gluten free, obviously — it’s 2024). Cheesecakes and banana-nut breads and bacon — defined as “all types and forms (or cuts) of pork bacon, Canadian bacon and bacon substitutes such as turkey bacon, beef bacon, vegetarian bacon … slab bacon, sliced bacon, end pieces and jowl bacon … various types and forms of breakfast sausage such as, pork sausage, vegetarian based sausage, and other meats based sausage including a variety of meat combinations. Examples of meat combinations may include pork and turkey, pork and beef, etc. Forms of breakfast sausage may include loose, unlinked and linked in casings, and patty meat substitutes, formed links without casings, etc. The ingredients for breakfast sausage may include meat, poultry, cereal, soy protein, and other extenders” — and all types of pork and beef and chicken and organ meats and smoked salmon and eggs and ice cream (including nondairy, obviously; it’s still 2024) and lettuce and herbs. All types of fresh fruit, canned fruit, dried fruit, cocktail mixes, barbecue rubs and ketchups. All organ and wild meats including liver, kidney, heart, brains, tripe, chitterlings and tongue, and, obviously, game. Examples of game tagged by the Bureau of Labor Statistics are buffalo, bison, venison, goat, rabbit, quail, rattlesnake, pheasant, grouse and quail.
But wait! The CPI, obviously, isn’t mainly about food because most household expenditure isn’t on food. In fact, food occupies only 13.4 percent of a typical household budget. To track a typical household’s expenditure, the BLS also tracks price changes on apparel and health and education and insurance and transport and recreation/entertainment. Within that last category, there are tents for camping, table tennis rackets, outboard motors, fish food, scuba equipment, dog grooming services, digital cameras, sewing machines, thread, needles, health club memberships, hunting knives, sheet music, every kind of recorded music, TV subscriptions (both basic and premium), dog collars, golf carts. And much, much more.
The list of tagged items is so extensive it is vertiginous. In the course of making these categories, the BLS has finally settled the question of whether professional wrestling is fixed: The category of admission to sporting events includes “football, baseball, basketball, hockey, boxing matches, horse races, and dog shows” at “all levels of competition, such as professional, collegiate, high school,” but it specifically excludes wrestling. “Flea markets, art shows, fashion shows, Wrestling” are instead in the category of “admission to movies, theaters, concerts, & other recurring events.” It is fun to imagine the meeting where that question was settled — and perhaps there is a tiny glimpse of backroom drama in the fact that Wrestling, apparently uniquely among these many thousands of CPI entry items, has a capital letter.
In the middle of all this colossal project of categorization and enumeration, the single biggest category by far is shelter, which is how the BLS defines what most of us would call housing. Shelter takes up 36.3 percent of the CPI, a long way ahead of food (8 percent at home, 5 percent elsewhere), energy (7 percent), transportation (6.5 percent) and medical services (6.5 percent). The number for shelter includes all rentals, from people living in trailers in West Virginia to oil workers in company housing in Anchorage to crypto bros renting Miami condos. It covers homeowners too. In economics, there are many things that are counterintuitive, and one of them is the idea that the value of your house, in income terms, is the rent it is saving you. The “shelter” cost, for CPI purposes, is the number you would be paying for your property if you rented it. This is called “owners’ equivalent rent,” and it means that even if your housing costs haven’t in fact gone up because you own the place where you live your shelter costs, as measured by the CPI, will have increased.
There is something intellectually thrilling about this: millions of data points, from tens of thousands of sources, being recorded, categorized, quantified, analyzed and weighted, through the labor of thousands of people, and all of it to produce one single apparently simple and self-explanatory number. It is the principle of e pluribus unum, applied to data. All that work ends with a single number to represent all inflation, the CPI-U, which, at the time of writing, stands at 2.9 percent. (U stands for “all urban consumers” — about 93 percent of the U.S. population.)
Nothing about this is self-evident, though much of it, when you look underneath the hood, is the product of a rarefied form of common sense. The CPI in its modern form is the result of a continuing series of debates and arguments in the area where economics and politics overlap. The first attempt at producing a single number for inflation began in 1921, using data which had begun to be collected in 1913. The data for this “cost of living index,” as it was called, was collected from a survey of White wage-earner families in 92 cities. The collection of goods used to measure inflation is known as a basket, and that first basket contained items that seem less essential today: a straw boater, for example. The category of beef cuts is wonderfully specific, and there’s a helpful diagram of a cow to assist the person compiling the data.
The inflation basket has changed over time, and so has awareness of the different rates of inflation that apply to different citizens. The older index for urban wage earners was in 1978 renamed the CPI-W, and the newer index for all urban consumers — today the standard measure of inflation — became the CPI-U. And then there’s the reality of substitution, as economists call it: the fact that as prices change, our behavior changes too. The CPI can go up so much that it forces your spending to go down. As beef becomes more expensive, we switch to pork or chicken; if you can’t afford prime cuts to cook a steak, you use cheaper cuts to make a casserole. The BLS acknowledges this through an index that attempts to track substitution: the “chained CPI” or C-CPI-U. It was introduced in 2002. There is also a separate index for older Americans, CPI-E, introduced in 2008 after being mandated by Congress. This happened in response to political concerns that older people have different needs and spending patterns not reflected in the ordinary CPI-U. A cynic would point to older citizens’ tendency to turn out and vote. All these emendations reflect the fact that inflation indexes are things that are made, created through intellectual and practical work, and are prone to give different answers when asked different questions. It has never not been argued over, and it is often the case that people like the CPI when it’s telling them something they want to hear and level furious accusations against it when it’s saying something inconvenient.
The end product of this is a paradoxical number. For one thing, it is possible that it doesn’t often correspond to reality. As the BLS itself points out, because people’s lives are so different, it seldom mirrors a particular consumer’s experience. In particular, the poor tend to suffer higher inflation than the rich. Better-off people have assets, which, broadly speaking, rise in value as inflation climbs. Poorer people don’t, and they spend a bigger proportion of their income on those basics of life that are particularly exposed to surges in inflation: food and fuel. These are part of what is called “noncore inflation,” a strange term that tries to separate out from the rest of the economy the part of inflation that is chronically affected by fluctuating prices. But if you’re poor, there’s nothing noncore about the cost of the food on your plate or the gasoline in your tank: They are central to your experience of living day to day. Noncore is as core as it gets.
Because of all this, inflation is always and everywhere a political phenomenon.
