With So Many Flavors of Inflation, Which Should We Care About?

As a kid I was dazzled that Howard Johnson’s had 28 flavors of ice cream, including lemon stick and strawberry ripple. As an adult I am equally impressed by the number of flavors of inflation. There are dozens of ways to measure price changes, each serving a different purpose.

The big news on Thursday was an increase in one particular flavor of inflation, the price index for core services excluding housing. It rose 0.6 percent in January from December. If it increased that much every month — which it definitely will not — it would rise more than 7 percent in a year, which would be very bad.

I’ll say more about what that measure of inflation (known as “supercore”) is and why it matters, but for now I want to talk about how the U.S. government calculates inflation in the first place and why economists, including those at the Federal Reserve, care about some measures more than others.

All inflation rates are summaries. Calculated by either the Bureau of Labor Statistics, or B.L.S., (housed in the Labor Department) or the Bureau of Economic Analysis (housed in the Commerce Department), they’re based on the prices of items people spend money on, weighted by how much of each item they buy. In other words, the inflation you experience depends on the things you buy.

Since no two families buy exactly the same things over the course of a year, no two families will have the same personal inflation rate, as Steve Reed, an economist at the B.L.S., observed in a video primer.

The most familiar measure of inflation is the Consumer Price Index, which is prepared by the B.L.S. and tracks the cost of buying a fixed basket of goods and services. But even that seemingly well-known metric comes in multiple varieties. The one that typically gets quoted is C.P.I.-U, where the “U” stands for all urban consumers. It covers about 93 percent of the population, according to the B.L.S. Its less-known partner is C.P.I.-W, with the “W” referring to urban wage earners and clerical workers. That’s a subset that accounts for about 29 percent of the population.

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