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Economy & Business

“Everyday” Prices Much Higher Than Official Inflation Rate

The federal government says that consumer prices rose moderately last year, but if you think the cost of everyday purchases increased more than that, then you're probably right according to the American Institute for Economic Research (AIER).

The Bureau of Labor Statistics' Consumer Price Index (CPI) was up 3.1% in 2011. However, AIER's Everyday Price Index (EPI) indicates most Americans saw their day-to-day costs increase by 8%. That's because the EPI excludes housing, automobiles, furniture, appliances and other items purchased occasionally.

"It's important to think separately about day-to-day purchasing power and the broader long-term cost of living," said Steven Cunningham, AIER's research and education director. "Over the course of a year, the price of hamburger or a pound of coffee may change dramatically, but a car or house payment doesn't because it's contractually fixed."

Cunningham says the costs of irregularly purchased big-ticket items actually "dampen the impact of inflation."

So, the independent, Massachusetts-based organization's EPI includes only those goods and services that the average consumer buys at least once a month: food and beverages, gasoline, electricity, home heating, phone service, personal care products, prescription drugs and child care.

Over the last 15 years, the CPI's inflation averaged about 2.9% per year, but AIER says everyday prices rose on average 3.6% annually.

"When it's (CPI) the only price index you have, that's the one you go to," Cunningham said, "but it was really designed to conduct government policy, and it really wasn't designed to reflect day-to-day experiences of Americans. That's what we're doing, and I suppose when we talk to people at the BLS [Bureau of Labor Statistics], they'll be going, 'Gee, why didn't we think of that?'"

While consumer prices rose 3.1% nationwide in 2011, the cost of living was up 5.2% from the second half of 2010 to the second half of 2011 in the Pittsburgh region. According to the Bureau of Labor Statistics, that was the biggest 12-month jump since 1990.

The EPI does not provide regional analysis of consumer prices. Cunningham admits that "there are lots of things that add up to a different cost of living in each region," and says they plan to do more localized breakdowns in the future. He says the next step is to get consumers to use the information that affirms their belief that everyday prices are actually higher than the official inflation rate.

"People will have a tool with which to go and ask for raises," Cunningham said. "They'll have a tool to help them make better investments to protect them from inflation and so on."