While this month’s Consumer Price Index announcement from the Labor Department again showed inflation back down to an annual rate below 3 percent, it got the ETW stats team thinking about ways in which the relative importance of different types of goods and services has changed over time.

CPI isn’t just about what individual items cost – that’s only half the equation. The other part is the relative importance of that particular item, as measured in how much of a percentage of your monthly expenses it represents. For example, motor vehicle insurance has taken the biggest price increase of any significant good or service over the past 12 months – up 18.6 percent, July 2024 over July 2023. But car insurance only represents 2.949 percent of total monthly household expenditures in the weighting. Food costs (up 2.2 percent over last year) represent 13.410 percent of the weighting, and energy costs (only up 1.1 percent) represent an additional 6.916 percent of the weighting, and they drag down the relative importance of the large jump in car insurance prices.

At present, the monthly CPI “basket of goods” is weighted like this:

Transportation, including the cost of motor fuel, is currently 16.1 percent of the total monthly basket of goods, higher than any other category except shelter, which now dwarfs everything else.

(Ed. Note: Today, BLS classifies motor fuel as an “energy” cost, not a transportation cost, and likewise classifies home electricity, natural gas, propane, heating oil, and firewood costs as “energy,” not “housing.” But go a few years back and gasoline was part of transportation and home fuel services and power were part of housing. We have modified the definitions of transportation and housing in the current index to reflect the old school weighting, for reasons that will become clear.)

(Further Ed. Note: BLS made the decision to combine motor fuels with home electricity and home fossil fuel delivery before Teslas existed, but the decision to make gasoline and electricity purchases fungible under “energy” does mean that they won’t have to work so hard to determine how much home electricity goes towards EV charging moving forward, because that data will be VERY DIFFICULT TO FIND.)

But it wasn’t always thus. We looked back at the history of the relative importance weighting of the CPI basket of goods. The earliest we could find was 1948, but a look at that data showed a lot of holdover from World War II’s various economic disruptions, so we went ahead to 1954, an even 70 years ago and during a period of relative stability. Here’s how the weighting of the categories in the basket, corrected over the years so that the categories keep the same definitions, have changed over that time:

A few obvious conclusions can be drawn from this data:

• Big Agribusiness has made food cheaper, in real terms, over the decades.
• The offshoring of the textile industry to the Third World has made clothing much cheaper in real terms
• People smoke a lot less than 70 years ago and may drink less as well.
• People spend significantly more on transportation (mostly owning and operating their own vehicle) than they did 70 years ago.
• The fact that households used to spend 20-ish percent of their total monthly expenses on housing and now spend 40-ish percent sure looks like an indication that supply has not kept up with demand.

Combining housing costs and transportation costs into a single number can be useful, because some people trade higher commute times and costs for lower housing costs, or vice versa. The combined housing-transportation share of the CPI basket has gone from 32.7 percent of the total 70 years ago to 56.8 percent of the basket today.

Most of the cost of transportation is owning and operating your own vehicle, currently 14.2 percent of the monthly basket of goods. Looking back at the weighting every decade, this was actually much higher in 1984, before a re-weighting.

Ed. Aside: You may ask yourself, “why is it the Labor Department that collects and publishes this valuable economic data, not the Commerce Department or some other economic entity?

The answer is that the Labor Department was created in 1913 and the new Secretary was quickly drawn into mediating labor disputes. These disputes often involved cost-of-living adjustments, which (at the time) involved the union’s version of reality versus the company’s.

The Labor Department, through the Bureau of Labor Statistics, started collecting cost-of-living data to provide a non-partisan, mutually acceptable identification of the amount that the cost of living had increased in recent years, so as to help the Secretary mediate those labor disputes.

This means that, all along, the intent was to tell people how much the cost of living had risen since their last labor contract extension, which was rarely more than five years. Maintaining consistent categories so that the relative cost of specific things could be compared across many decades was never a top priority, so there are some gaps in data over the years.