Ice Cream and Bacon Matter: Why Economists Are Hanging on Your Every Purchase

Anyone tempted to believe that government economic reports are merely a recitation of boring statistics, got a surprising treat Wednesday with a Labor Dept. blog post detailing how inflation influences our choice of snacks.

The post was written by Steve Henderson, a supervisory economist at the U.S. Bureau of Labor Statistics, and looks at how the government calculates the Consumer Price Index.

The index is a monthly assessment of price changes for goods and services in the United States.

The CPI has separate inflation indexes for just about everything people purchase, including categories such as “Bacon and related products,” and “Ice cream and related products.”

Henderson goes on to report that according to the latest BLS Consumer Expenditure Survey, the average U.S. household spent around $54 in the last year, and he uses ice cream and bacon to illustrate how consumption and prices fluctuate.

Why does the government have to track food and other prices in such a granular way?

As Henderson explains, it’s because not every item’s price goes up or down at the same rate.

For example, bacon has increased in price almost 32 percent over the past 10 years, while ice cream went up 21 percent over the same time period.

Henderson notes that as economists track how prices moved over the last year, bacon is slightly less expensive than it was in January 2016, while the price of ice cream has gone up slightly.

He says this information is helpful for families trying to see where their food budget money went, as well as researchers investigating changing food prices and other indicators of inflation.

“Most importantly, the CPI needs to know how much the average U.S. household spends on both of those two food items in order to measure the impact different inflation rates have on total inflation,” Henderson writes. “If everybody spent the same number of dollars on ice cream as they do on bacon, then you could just use a simple average of the two inflation rates to get a total.”

The bureau’s  Consumer Expenditure measures all the different goods and services consumers purchase in a year, and passes these numbers to the CPI to form a “market basket” —a list of everything people buy and what percentage of their total spending goes to each item.

“The latest spending numbers showed that the average dollar amount per year that all U.S. households spent on ice cream was $54.04, while the average amount on bacon was $39.07,” Henderson says.

“That means that ice cream has a greater importance than bacon when tracking inflation in the CPI. In other words, the more people spend on an item, the more inflationary changes to its cost will affect the total inflation rate,” he explains.

A number of people, including a wide range of policymakers, rely on the CPI to inform their decisions and assessment of the health of the economy.

For example, the U.S. Census Bureau analysts use CPI data to adjust the official poverty thresholds for inflation, and it’s one of several factors the Federal Reserve Board considers when deciding whether to raise or lower interest rates.

Employers may use it to determine whether to give cost-of-living increases, and policymakers use the CPI when considering changes to allotments for things like Social Security, military benefits, or school lunch programs, Henderson says.

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