Residents are rarely aware of the decline in US inflation? Many daily costs are not included in the CPI

According to Zhitong Finance APP, over the past two years, the pressure of inflation in the United States has significantly eased. However, there is still a disconnect between the inflation data in the United States and the financial situation of millions of Americans. This is partly due to price levels still being higher than pre-pandemic levels, and another explanation is that the government's main inflation indicators do not include the soaring costs of some major daily expenses in recent years.

It is worth noting that the Consumer Price Index (CPI) of the U.S. Bureau of Labor Statistics does not include property taxes, tips, interest costs on credit cards and car loans, a key part of household insurance, as well as broker fees and under-the-table payments to babysitters and dog walkers. These costs may gradually accumulate over time.

Steve Reed, the economist at the U.S. Bureau of Labor Statistics responsible for the index, stated: "CPI reflects the goods and services you buy for consumption, but there are other factors that affect your cost of living beyond that." "Therefore, it cannot accurately price it."

As of September, the CPI rose by 2.4% over the past year, marking the smallest increase since early 2021. Since the Federal Reserve began raising interest rates in 2022, inflation has eased, with previous rate hikes leading to spikes in mortgage, credit card, car loan, and student loan interest rates. Although interest payments account for a significant portion of expenditures for many Americans, the CPI measures changes in the prices of goods purchased, not the debt incurred to purchase these goods.

For example, with a typical interest rate of around 22%, approximately $628 billion in credit card debt is rolled over or unpaid each month. This means that while the goods or services purchased are included in the official measurement standards, the millions of dollars in credit card interest are not factored in.

Pete Earle, an economist at the American Institute for Economic Research, said, "This will definitely affect how people consume." He is the founder of the Everyday Price Index, which aims to track daily consumption that cannot be easily avoided. "This is not true inflation, but it is definitely a factor to consider."

The issue of housing is a bit tricky, as the Bureau of Labor Statistics considers it an investment decision rather than a daily expense. This means that housing prices, as well as related costs such as mortgage payments and property taxes, are excluded, which can add up to thousands of dollars annually and fluctuate with prices.

The same principle applies to how the CPI measures homeowners insurance, as it only considers insurance coverage for personal property, not the residence or actual structure itself. The latter reflects the price of the home, which is a more significant factor affecting the annual premiums for homeowners.

This overall index is known as the CPI for All Urban Consumers, covering over 90% of the U.S. population and including areas with populations of 10,000 or more. Since the index is based on typical consumers, those who have a higher proportion of medical expenses in their expenditures than the average, or households that use solar energy instead of fuel, may experience inflation rates different from the norm The U.S. Bureau of Labor Statistics stated on its website: "CPI may not necessarily measure your own perception of price changes." "The national average reflects the personal price experiences of millions of people; it rarely reflects the experiences of specific consumers."

Price issues are not unique to the CPI. For example, the Personal Consumption Expenditure Price Index compiled by the Bureau of Economic Analysis also has some quirks when measuring specific expenses such as healthcare. Although the Federal Reserve prefers the Personal Consumption Expenditure Index, White House economists have stated that the CPI often more closely tracks consumers' actual out-of-pocket expenses.

Behavioral Changes

In today's economy, Americans need to deal with numerous companies that charge fees. Some of these fees are the result of changes in consumer behavior, which take time to be included in the CPI, such as fees for grocery bags, airline baggage, meal delivery services, and some restaurant service charges added to bills.

Other items are not within the scope of the CPI market basket, which may make consumers feel that their actual cost of living has not been accurately measured.

Here are some other expenses not included in the CPI:

Optional tips: Tips are usually not included unless required by the restaurant, such as when tips are automatically included in the bill for large gatherings. However, any form of optional tips is not recorded, even though tipping has become increasingly common and essentially mandatory, with retail payment processing software emphasizing upgraded suggested amounts.

Gambling activities: In 2017, the price of a Powerball ticket doubled to $2, and by April 2025, the price will jump to $5. Powerball tickets are sold in 45 states and Washington D.C. However, lottery and sports betting are not included in the CPI.

Marijuana use: Although marijuana is legal in many states for medical and/or recreational purposes, the government does not have robust nationwide data to track prices.

Illegal activities: Technological advancements have made it easier to enforce parking or speeding violations through photo enforcement. This may incur significant costs for consumers but is not included in the CPI