Actual CPI-U basket of goods - Economics Video Lecture

Male voice: What I want
to do in this video
is explore what the actual basket of goods
looks like for the consumer price index.
We had a ridiculously simple
example in the last video.
Right over here, this is a
table I got, this is from
a press release issued by the
Bureau of Labor Statistics.
If you do a search for a CPI or a CPI-U
in Bureau of Labor
Statistics, you should find
the press release where
they issue the CPI.
This is the first table
in that press release.
They say the Consumer
Price Index for all urban
consumers, and just
like we talked about in
the last video, when people
talk about the CPI Index,
they're really talking about, or they tend
to be talking about, the
CPI-U. The CPI for urban
consumers because most consumers
fall under this category.
U.S. city average by expenditure category
and commodity and service group.
Then they define their base year.
The base year, actually they have a range,
maybe I guess they take an
average between 1982 and 1984.
They say that is 100
unless otherwise noted.
What they do in this first column,
so these are the different
buckets that people
spend, that the urban consumer might spend
some of their money on. This is saying
the basket of goods
we're giving a weighting.
About a little under 15% is spent on food
and beverages. Then they
break down that 15%,
so 13% is on food and then
they even break it out
between 7% or a little
under 8% is food at home.
Then they break it out
between cereals, meats,
dairy and related products,
fruits and vegetables.
The average, based on
the way the basket looks,
it looks like they're
spending about the same amount
on fruits and vegetables
as they're spending
on alcohol. They're spending
significantly less on ...
Well, I don't know if
that's a good trend right
over there, but that's why
this is interesting to look at,
because this is viewed as a typical basket
of goods for your average urban consumer.
You can see they're
spending a little bit more
on meats, poultry and fish.
You can see the breakdown.
Then you could keep breaking it down.
They're spending 41%, the basket of goods,
on housing, and they even
break that up in terms
of some of it is your
primary, some of it is your
general shelter, then there's stuff like
fuels and utilities.
That's encapsulated in
your housing, you're going
to have to heat your home
and whatever else. Then
your furniture, 4% or 4.4%
is spent on furniture.
We could keep going down.
This is pretty interesting to look at.
The basket of goods, so this
is viewed as the typical
urban consumer spending 3.6% on apparel,
17% on transportation,
6.6% on medical care,
and almost a similar amount on recreation.
A similar amount on
education. They keep breaking
it down into all of the
different categories.
A little under 1% on tobacco
and smoking products.
You might say,"Wait,
most people these days
"in the U.S. don't smoke,
but the ones who do
"spend way more than
this." This is an average
of all of the people in the United States.
For example, if one
out of ten people spent
10% of their income on
tobacco and the other
people don't smoke at
all, then you might get
on average, the average
basket of goods, is about 1%.
They keep breaking it
down into other things.
All of these weightings
combined, they will
add to 100. That is the
entire basket of goods.
Now what they do, this is their weighting.
This column right over
here essentially gives
us the weighting as of December 2010.
That's going to change as
people's habits change,
or as new goods and services
emerge on the market,
or frankly even as prices
change, that will change.
But you have to some weighting in which
to take a weight of the price changes,
or to weight the average percent changes.
They told us that unless otherwise noted,
our base year is going to be 100.
Relative to that base
year, they then give us
the prices, the price indices for each
of these buckets in
November 2011, and then
December 2011. Then
they're going to actually
figure out the unadjusted percent change
to December 2011 from.
This is year over year,
from December of the
previous year, and this
is from the previous month. You can see
the change from the previous year is much
larger than the change
from the previous month.
One way to look at this, this is saying
in November 2011, food
and beverages, on average,
were about 2.3 times more
expensive than they were
between 1982 and 1984.
December 2012, sorry,
December 2011, they were about 2.31 times
more expensive than
they were in 1982-1984.
Just as an extra kind of data point, they
actually give us this
one little line here.
If we set 1967 as the
base year, then all items,
if we use the default
base year of 1982-1984,
in November 2011 all items
were about 2.26 times
as expensive as they were in 1982-1984.
But if we use 1967 as our base year,
now it's 6.77 times as expensive.
Remember, the base year is equal to 100.
This is 6.77 times as
expensive as they were
in 1967. You could go
down all of the categories
to essentially see these are all relative
to 1982-1984, so you
can see how much things
have gotten more expensive.
It's interesting.
Things like furniture
have not gotten that much
more expensive relative to the early '80s.
In fact, there are some
categories that have even
gotten cheaper. For example,
new and used motor vehicles.
It hasn't changed much at
all since, based on at least
this weighting, and they
do all these adjustments
based on the quality of
the car. You might say,
"Wait, I'm spending more on
my car than I did in 1982,"
but they're making
adjustments based on your car
being that much better and all of that.
It's not exactly an apples
to apples comparison.
But you could see that
based on those adjustments,
it doesn't look like it's changed much.
Things like medical care have gotten a lot
more expensive since the
early '80s; four times
as expensive, you see right over there.
Video and audio has gotten cheaper.
Recreation in general
has not gotten that much
more expensive.
Information and information
processing has gotten cheaper. Telephone
service has not gotten
that much more expensive.
Communication has gotten cheaper.
I don't know if you were
around in the early '80s,
but actually the cost to
call someone long distance
has gone down dramatically.
Even, see, personal
computers, they have gotten cheaper.
Once again, like the cars,
there's an adjustment
for essentially ... They
don't do it directly
because obviously computers have gotten
orders of magnitude more powerful,
but they have gotten on cheaper average,
and they have gotten
much, much more powerful.
This is fun to look at.
You can see, looking
right over here. Tobacco
and smoking products
have become dramatically more expensive.
You have more and more
jurisdictions that are,
for the most part, taxing it or whatever.
They're making it harder
and harder to buy.
You see things like ...
It's just fun to look at.
Dig around here. Medical, oh, we already
looked at this. This is
the overview services,
durables. A lot of
these things are in this
one to two to three price range.
The stuff like medicine,
tobacco, much more expensive.
Things like computers,
communications, much cheaper.
Then as we mentioned before, this measures
the percent change to December
2011 from the previous year.
That's why it gives you
a year over year number.
This is from the previous month.
These are seasonally adjusted changes.
If we have time in another
video, I'll talk about
how you can calculate, or I'll do a simple
example, of seasonally adjusting things.