The key gauge to measure inflation does not take into account major expenses that have surged for consumers since the pandemic — including interest charges from credit cards and auto loans, tips and even fees paid to babysitters and dog walkers.
The Consumer Price Index (CPI), published monthly by the Bureau of Labor Statistics, measures the average change over time in the prices paid by consumers for a representative basket of goods and services.
But there’s more to consumers’ everyday expenses than those tracked by the CPI, such as gas, groceries, medical expenses, travel and rent, according to experts.
“The CPI is capturing the goods and services that you purchased for consumption, but there are things that affect your cost of living that are outside of that,” BLS economist Steve Reed told Bloomberg News.
“And so it can’t realistically be priced.”
While CPI measures how much was spent on specific items or services, what it does not take into account is the interest rate that is applied to credit card debt that is rolled over every month.
Americans have roughly $628 billion in credit card debt that is unpaid. With the typical interest rate charging around 22%, that equates to large sums of money.
In August 2022, the average rate across all accounts was 16.27% — or 25% lower than what it was last month.
BLS analysts who compile CPI data also view housing as an investment decision, not an everyday expense. Accordingly, CPI doesn’t account for home prices, mortgage payments and property taxes, which can add up to thousands of dollars a year depending on price fluctuations.
Single-family homeowners in the US paid a total of $363.3 billion in property taxes last year — a 6.9% increase from the $339.8 billion that they paid in 2022, according to ATTOM, which analyzed 89.4 million homes nationwide.
The 6.9% increase is the largest in five years.
The report also found that the average tax on single-family homes rose 4.1% last year to $4,062. That followed a 3% increase in 2022.
Another metric — homeowners’ insurance — is not included in CPI calculations, though it does account for a related category called “tenants’ and household insurance” as part of the shelter index.
If homeowners’ insurance were to be included in the CPI, it would likely push the headline inflation number higher, according to experts.
“The CPI does not necessarily measure your own experience with price change,” the BLS says on its website.
“A national average reflects millions of individual price experiences; it seldom mirrors a particular consumer’s experience.”
Lottery tickets, marijuana use, paying off parking tickets and other legal expenses are not factored into CPI as well.
Inflation dropped last month to its lowest point since it first began surging more than three years ago.
Consumer prices rose just 2.4% in September from a year earlier, down from 2.5% in August, and the smallest annual rise since February 2021.
Measured from month to month, prices increased 0.2% from August to September, the Labor Department reported earlier this month, the same as in the previous month.
But excluding volatile food and energy costs, “core” prices, a gauge of underlying inflation, remained elevated in September, driven up by rising costs for medical care, clothing, auto insurance and airline fares.
Core prices in September were up 3.3% from a year earlier and 0.3% from August. Economists closely watch core prices, which typically provide a better hint of future inflation.
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