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The Consumer Price Index (CPI) decreased by 1.4 percent, before seasonal adjustment, during the 12 months ending in June, according to data released this month by the Bureau of Labor Statistics. The 12-month rate of price change was also negative in March, April, and May - and the rate of decrease has accelerated each month. The major factor is the sharp decrease in energy prices compared to their level a year ago. Even though energy prices rose more than 7 percent in June, they were still 25 percent below their level in June 2008.
The general level of prices has not trended downward this long, and this much, since 1950. As shown in the chart above, price inflation, not deflation, has been the norm in the post-WWII years. Even moderate rates of price inflation, if they persist, can greatly erode the purchasing power of the dollar over time. Over the past 10 years, the annual rate of price inflation averaged 2.6 percent, which sounds relatively low. The cumulative result, however, is that the general price level rose by 29.8 percent. To buy what a dollar bought in 1999, the average consumer now needs $1.30. The increase in the average price level masks wide variation in the price changes for specific items. The table below shows a breakdown of price changes over the past year and the past 10 years, by major categories of goods and services. Percent Change in Selected Components of the CPI
(not seasonally adjusted) |
| 12 months
ended
June 2009 | 10 years
ended
June 2009 | | All Items | -1.4 | 29.8 | | Food and Beverages | 2.2 | 32.9 | | Housing | 0.1 | 32.9 | | Apparel | 1.5 | -9.2 | | Transportation | -13.3 | 28.1 | | Medical Care | 3.2 | 49.9
| | Recreation | 1.5 | 12.2 | | Education & Communication | 3.0 | 26.1 | | Other Goods and Services | 7.1 | 44.8 | | Special Indexes: | | | | Energy | -25.5 | 92.3 | | Food | 2.1 | 33.1 | | All Items less Food and Energy | 1.7 | 24.2 | The AIER Cost-of-Living Guide reviews trends in price inflation back to 1800, with a particular emphasis on changes since the 1970s. It includes a table that shows you how to convert prices from any year since 1920 to the present day. The 2009 Cost-of-Living Guide is available free to AIER subscribers or $2 for non-members.
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