# Inflation: CPI vs. Core CPI vs. Food and Energy CPI

by: Chris Ridder, CFA

Inflation was reported yesterday by bls.gov. Deflation pundits applauded, "The core CPI (which excludes food and energy) came in flat and the YoY rate is now down to 0.9% ... " (from David Rosenberg in his "Potluck with Dave" report sent out on May 19th by Gluskin Sheff & Associates Inc.).

I however looked at the YoY rate being up 2.2%. That does not seem like deflation to me. I then checked further and found that "core" CPI is 77.7% of total CPI so this leaves 22.3% of CPI being what consumers spend on food and energy.

I then went back 20 years ago to my elementary algebra class and set up the following equation:

(.777 * .9) + (.223 * X) = 2.2

With the solution being X = 6.7 (approximately)

This means that the inflation measure of food and energy (F&E CPI) was 6.7% YoY in April on an unadjusted basis. This means the results are YoY:

CPI = 2.2%
"core" CPI = .9%
F & E CPI = 6.7%

Food and Energy CPI is the winner of our derby. Which is just about 1/4 of consumer spending.

Disclosure: None

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