Why are food & energy costs excluded from the inflationary index?

Answer 1

Food and energy costs tend to be the fastest changing components of the consumer price index. They move up, and down, with sometimes large changes, and if they were added to the core inflation rate, you would see a lot of noise in the inflation rate, and you would have other rates (labor contract cost of living adders, social security adders, etc) changing a lot - in both directions.

So the gov't decides to take them out to get a smoother, less volatile core inflation rate.

Another thing. Economists believe that food and energy have other substitues that consumers can use when those prices start to increase. People can carpool, use mass transit, change their travel habits, eat different foods (tea instead of coffee, chicken instead of beef, cabbage instead of lettuce, etc.) and reduce the burden of food & energy price increases without making big lifestyle changes.

So goes the theory.

Answer 2

Because though their prices rise during inflation, their price fluctuation has nothing to do with detecting inflation. The rise in cost has other factors to it - happenings in the world, drought, etc.

It is true - adding them to the inflationary index would reflect a huge number, but the way their prices fluctuate would be misleading during a recession.

Answer 3

To make the administration look better and to reduce the cost of living increases for government programs such as federal employees, retirees, social security, etc. Any other answer is political BS.

Answer 4

the government saves billions on social protection and different government classes via understating the truthfully shopper fee index. This money can then be spent on different silly classes. Like giving extensive bonuses to wealthy bankers.

Answer 5

Makes the government look better, I didn't know that they excluded those things. But the unemployment figures that they give out are ambiguous, they are only counting those people that are still receiving checks. Many more then that are unemployed or under employed. Makes them look better, I don't know when they changed these things, under what administration I mean. Might be a interesting question.

Answer 6

God question probably because they are the 2 fastest rising costs we have to deal with. If you added them in the inflation rate would skyrocket and no president or congress wants that on their record.

Answer 7

They are considered necessities.