Most people recognize the CPI (consumer price index) as a common measure of U.S. inflation. But the CPI sometimes seems at odds with the personal experiences of some consumers, who often point out that particular goods have become more expensive than the CPI seems to imply. This incongruity occurs mostly because the CPI is an index that covers many products; the variations in prices are averaged out when forming the aggregate CPI. Case in point: We show here how price fluctuations increase as the range of products narrows. The graph shows the inflation rate for the CPI covering all items (blue line), which is quite stable. But compare this with energy prices (red line), which fluctuate wildly. Narrow down energy prices to just gasoline (green line) and you find even more volatility. CPI data even include particular types of gasoline for particular regions, which display even more volatility (purple line). It is true that the volatility of energy prices is most stark, but similar trends do appear for other categories as well.
How this graph was created: Search for the various series and add them to a graph. Change each series to “Percent Change from Year Ago” and adjust the sample to eliminate the years where only the all-items CPI was available.
Suggested by Christian Zimmermann.
