Pay No Mind to Consumer Price Inflation…Sort of

The FT reported today that “US inflation rose 4.2 per cent in April over its level a year ago…[and] is the biggest rise since 2008 and a significant leap compared with the 2.6 per cent reading in March.”

While the metric does look ominous – and I have no doubt that inflationary pressures are going to continue to mount up – this measure of headline inflation is misleading. The Consumer Price Index (CPI) has a lot of assumptions included in its calculation that make it subject to imprecision. Not that the metric is wrong, but rather it may misrepresent the spending habits of the average consumer. 

As such, a much better indicator of inflation is the Median Consumer Price Index. This index omits outliers and is therefore a more precise indicator of underlying inflation trends. 

As you can see from the graph and chart below, although there is a small tick upwards in the Median CPI, it is not yet at an alarming level. The data source of the graph and chart can be seen here.      

Percent change, past 12 months

Date	Nov-2020	Dec-2020	Jan-2021	Feb-2021	Mar-2021	Apr-2021
Median CPI	2.2	2.2	2.1	2.1	2	2.1
16% trimmed-mean CPI	2.1	2.1	2	2	2.1	2.4
CPI	1.2	1.4	1.4	1.7	2.6	4.2
CPI less food and energy	1.6	1.6	1.4	1.3	1.6	3