Is the CPI a scam?

The latest consumer price index figures were released yesterday and they showed a less-than-expected rise in the prices the average consumer pays for goods ranging from food to medical expenses. Of course, with the news dominated by the high cost of fuel and food prices continuing to rise, it's difficult to believe that inflation is not still higher than what is being reported. Consequently, I'm not surprised when asked how the CPI could possibly be an accurate reflection of the changes in the prices we really pay.

The reality is that it's probably not too far off from the truth. Sure, there are likely to be some estimation errors that come from the fact that not every single product can be monitored, but - on the whole - the Department of Labour is most likely reporting the figures it actually does record from in the marketplace. So, then, what is the discrepancy? Why is it that it seems as though our prices are rising faster than what our government is telling us?

The answer, unfortunately, is unlikely to satisfy many who are pondering the question. For one, the media isn't helping matters. The fact that we hear so much about commodity prices and the cost of oil on the rise and hitting record levels tends to overwhelm the public consciousness as it relates to prices. 

Furthermore, it's important to remember what the CPI actually represents: the average price paid for a specified bundle of goods by the average consumer in America. Now, ask yourself: are you average? To answer the question, consider the goods that you buy; are they representative of what the average person buys on a regular basis?

Although unsatisfying, the reality is that the CPI does probably represent a relatively accurate estimate of how prices change for the average consumer. Maybe what we should all be complaining about is the fact that there is no price index for the middle class, middle-upper class and so-on. All our concerns over gasoline prices are warranted, but does the average consumer drive an SUV or take the bus? While the 100% rise in the price of rice is undoubtedly troubling for developing nations, the extra $5 a month for the American household is, in all likelihood, going to go unnoticed as a change in the bank account balance.