Do you feel like your paycheck doesn’t pay as many bills as it did several months ago?
For the past couple of years, economists have expressed concerns about both inflation and deflation. In other words, inflation has been low.
Over the past decade the Denver-Boulder-Greeley Consumer Price Index (CPI) has expanded at a modest annualized rate of 2.1% (this rate is used as a proxy for the state), slightly lower than the U.S. rate of 2.4%. More recently, the past two years, inflation has been almost non-existent, 0.6% both in Colorado and the U. S.
In some cases, the Lost Decade has forced companies to market their products differently in order to retain sales and remain profitable. For example, restaurants may have held prices constant, but made the portions smaller.
The brief analysis that follows looks at annualized rates of growth of the Colorado CPI for the period 2001 to 2010.
Let’s take a look at apparel. While the emperor may have no clothes, most people have been able to afford an adequate wardrobe at a reasonable price. For the decade, clothing costs have risen by an annualized rate of 0.9% and prices in 2010 were less than 2007.
The price for household furnishings has declined since 2004. For the decade the annualized change in inflation has been -0.5%.
So far, so good if buying clothes and updating your household decor have been a priority for you; not so good if you owned a clothing or furniture store.
Housing prices, which is a dominant component of the CPI, have remained constant for the past three years. For the period, prices for shelter rose at a compound rate of 1.3%.
On the other hand, food and beverage prices have increased at a compound rate of 2.3%, slightly higher than the rate for all goods and services. After sharp increases in 2007 and 2008, prices have decreased slightly.
Recreation prices have risen at a compound rate of 3.0% for the decade, bad news for the active-minded population of Colorado.
Medical care has grown at a compound rate of 3.9% over the past decade. For the family of four this is noticeable, while a healthy single person who avoids hang-gliding and race car driving is unlikely to notice.
Finally, we will take a look at electricity, utility (piped) gas service, and motor fuel. Each of these areas has experienced extreme volatility over the past decade, often posting double-digit swings in either direction.
Electricity has increased at an annualized rate of 3.9%, gas service 1.9%, and motor fuel, 5.6%. The steep increase in the latter is partially responsible for increases in food, beverage, and recreation prices.
As can be seen, the impact of inflation varies based on a person’s lifestyle. Those who eat, play, drive cars, and go to the doctor will have felt the pinch of inflation more than people with a different lifestyle. These trends are likely to continue in the months ahead. (For more information on the CPI-U check out the Bureau of Labor Statistics Website ).
©Copyright 2011 by CBER.
