While the Labor Department’s announcement of the Consumer Price Index this month again showed that inflation has fallen back to an annual rate below 3 percent, it received the ETW The statistics team thinks about how the relative importance of different types of goods and services has changed over time.

The Consumer Price Index isn’t just about the cost of individual items—that’s only half the equation. The other part is the relative importance of that particular item, measured by what percentage of your monthly spending it represents. For example, of all major goods and services, auto insurance has seen the largest price increase over the past 12 months—an 18.6 percent increase in July 2024 compared to July 2023. But auto insurance only accounts for 2.949 percent of total monthly household spending. Grocery costs (up 2.2 percent year-on-year) account for 13.410 percent of the weighting, and energy costs (just up 1.1 percent) account for another 6.916 percent of the weighting, dragging down the relative importance of the big jump in auto insurance prices.

Currently, the monthly CPI basket is weighted as follows:

Transport, including fuel costs, currently accounts for 16.1 percent of the total monthly basket of goods, higher than any other category except accommodation, which now overshadows everything else.

(Editor’s note: Today, the BLS classifies fuel as an “energy” cost rather than a transportation cost, and similarly, the BLS classifies the costs of electricity, natural gas, propane, heating oil, and firewood as “energy” rather than “housing.” But a few years ago, gasoline was part of transportation, and fuel services and electricity were part of housing. We changed the definitions of transportation and housing in the current index to reflect the old-school weighting, for reasons that will become clear.)

(Additional Ed. Note: BLS made the decision to combine fuels with household electricity and fossil fuel delivery to homes before Teslas existed. However, the decision to make gasoline and electricity purchases fungible under the term “energy” means that in the future they won’t have to go to as much trouble to track how much household electricity is used to charge EVs, because that data will be VERY HARD TO FIND.)

But it wasn’t always like that. We looked at the history of the relative weighting of the Consumer Price Index (CPI) basket of goods. The earliest we could find was 1948, but looking at that data showed that there were a lot of holdovers from the various economic upheavals of World War II. So we went on to 1954, exactly 70 years ago and a time of relative stability. Here’s how the weighting of the categories in the basket, which has been adjusted over the years so that the categories retain their definitions, has changed over that time:

There are some obvious conclusions to be drawn from this data:

• The large agricultural companies have made food cheaper in real terms over the decades.
• Due to the relocation of the textile industry to the Third World, clothing has become much cheaper in real terms.
• People smoke much less than they did 70 years ago and may also drink less.
• People spend significantly more on their means of transportation (mostly on owning and operating their own vehicle) than they did 70 years ago.
• The fact that households used to spend about 20 percent of their total monthly expenditure on housing and today it is about 40 percent seems to indicate that supply has not kept pace with demand.

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

The largest share of transportation costs is related to owning and operating a personal vehicle. Currently, these account for 14.2 percent of the monthly basket of goods. If we look at the weighting of each decade, this value was actually much higher in 1984, before the reweighting.

Ed. Apart from that: You may be wondering, “Why does the Department of Labor collect and publish this valuable economic data and not the Department of Commerce or another economic agency?”

The answer is that the Ministry of Labour was created in 1913 and the new minister quickly became involved in mediating industrial disputes. These disputes often involved cost of living adjustments, which (at the time) pitted the union’s view of reality against that of the company.

The Department of Labor began collecting cost of living data through the Bureau of Labor Statistics to provide a bipartisan and mutually acceptable determination of the amount of cost of living increases over the past few years and to facilitate the Secretary’s mediation in these labor disputes.

That is, the intention all along was to tell people how much the cost of living has increased. since her last employment contract extensionwhich rarely lasted more than five years. Maintaining consistent categories so that the relative costs of certain things could be compared over many decades was never a top priority, so there are some gaps in the data over the years.