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Current time:0:00Total duration:7:28

Video transcript

what I want to do in this video is explore what the actual basket of goods looks like for the Consumer Price Index we had a ridiculously simple example in the last video and right over here this is a table I got this is from a press release issued by the Bureau of Labor Statistics so if you do a search for CPI or CPI - you and Bureau of Labor Statistics you should find the press release where they issue the CPI and this is the first table in that press release and they say the Consumer Price Index for all urban consumers and just like we talked about in the last video when people talk about the CPI index they're really talking about or they tend to be talking about the CPI - you the CPI for urban consumers because most consumers fall into this category US city average buy expenditure category and commodity and service group and then they define their base year the base year actually they have arranged maybe I guess they take an average between 1982 and 1984 they say that is a hundred unless otherwise noted and so what they do in this first column so these are the different buckets that people spend that the urban consumer might spend some of their money on so this is saying the basket of goods were giving awaiting so about a little under 15% is spent on food and beverages and then they break down that 15% so 13% is on food and they even break it out between 7% or a little under 8% is food at home and then they break it out between cereals meats dairy and related products fruits and vegetables so the average based on the way the basket looks it looks like they're spending about the same amount on fruits and vegetables as they're spending on alcohol oh and they're spending significantly less on well that's I don't know if that's a good trend right over there but this isn't it that's why this is interesting to look at because this is viewed as a typical basket of goods for your average urban consumer and you can see they're spending a little bit more on meats poultry and fish you could see the breakdown and then you can keep breaking it down they're spending 41% the basket of goods on housing and they even break that up in terms of some of it as your primary some of it is you're kind of just general shelter then there's stuff like food and utility you land utilities that is encapsulated in your housing you're going to have to heat your home and whatever else then your furniture four percent or four point four percent is spent on furniture we could keep going down this is pretty interesting to look at the basket of goods so this is used as a typical urban consumer spending 3.6% on apparel 17% on transportation 6.6 percent on medical care and almost a similar amount on recreation a similar amount on education and they keep breaking it down into all of the different in the different categories a little under 1% on tobacco and smoking products and you might say well most people don't you know these days in the u.s. don't smoke but the ones who do spend way more than this so this is an average of the all of the people who all the people united states so for example if if one out of 10 people spent 10 percent of their income on tobacco and the other people don't smoke at all then you might get on average the average basket of goods is about 1% and they keep breaking it down into into other things and all of these weightings combined they will add to they will add to 100 that is the entire basket of goods and now what they do so this is there's this as they're waiting this column right over here essentially gives us the waiting as of December 2010 and that's going to change as people's habits change or as new goods and services emerge on the market or frankly even as prices change that will change but you have to have some weighting in which to kind of take a weight of the price changes or a weight to weight the average percent changes now they told us they told us that unless otherwise noted our base here is going to be a hundred and then relative to that base year they then give us the prices the price indices for each of these buckets in November of 2011 and then December of 2011 and then they're going to actually figure out the unadjusted percent change to December 2011 from so this is year over year from December the previous year and this is from the previous month and you can see the change from the previous year is much larger than the change from the previous month and one way to look at this so this is saying in November 2011 in November 2011 food and beverages on average were about 2.3 times more expensive than they were between 1982 and 1984 December 2012 sorry December 2011 they were about 2.3 one times more expensive than they were in 1982 to 1984 and just as an extra kind of data point they actually give us this one little line here they said well if we set 1967 is the base year then all items so here all items if we if we use the the default base year of 1982 to 1984 in November 2011 all items were about two point two six times as expensive they were in 1982 to 1984 but if we use 1967 as our base year now it's about six it's six point seven seven times as expensive remember the base here is equal to one hundred so this is six point seven seven times as expensive as they were in 1967 and you could go down you could go down all of the categories to essentially see these are all relative to 1982 to 1984 so you can see how much things have gotten more expensive so it's interesting things like furniture things like furniture have not gotten that much more expensive relative to the early 80s in fact there are some categories that have even gotten cheaper for example new and used motor vehicles it hasn't changed much at all since based on at least this weighting and they do all these adjustments based upon the quality of the car so you might say wait I'm spending more in my car that I did in 1982 but they're making adjustments based on your car being that much better and all of that so it's not exactly an apples to apples comparison but you could see that based on those adjustments it doesn't look like it's changed much things like medical care has gotten a lot more expensive since the early 80s four times as expensive you see right over there video and audio has gotten cheaper recreation in general has not gotten that much more expensive information and information processing has gotten cheap or telephone service has not gotten that much more expensive communication has gotten cheaper and you I don't know if you were around in the early 80s but actually the cost to call someone long-distance has gone down dramatically even see personal computers they have gotten cheaper and once again like the auto like the cars there's an adjustment for it for essentially they don't do it directly because obviously computers have gotten orders of magnitude more powerful but kind of the they have gotten on cheaper average and they have gotten much much more much more powerful but this is fun to look at I mean you can see look at it right over here tobacco and smoking product has become dramatically more expensive you have more and more jurisdictions that are for the most part taxing it or whatever to making it harder and harder to buy you see things like I'm it's just fun to look at dig around here medical oh we already looked at this this is the overview services durables you know a lot of these things are in kind of this 1 to 2 to 3 price range but the stuff like medicine tobacco much more expensive things like computers communications much cheaper and then as we mentioned before this measures the percent change to December 2011 from the previous year so that's why it gives you a year-over-year number and this is from this is from the previous month and these are seasonally adjusted changes and if we have time in another video I'll talk about how you can calculate or I'll do a simple example of seasonally adjusting things