How many times have you been listening to your radio or reading an article or watching some pundit on television talking about the present day inflation rate but then qualifying it though, by stating that such and such stated inflation rate, has taken out volatile items such as energy and housing, leaving us with something that they then call "core inflation", whatever that might mean. It seems to me that if you are going to drop out certain items from the Consumer Price Index (CPI) because they are too volatile, by virtue of their price dropping too low, too quickly, or rising too high, too fast, you are missing almost the entire boat of what inflation is really suppose to measure.
What inflation should measure is the change in the CPI irrespective of whether certain items are volatile or not, because that is the reality of the situation, and should be recognized for what it is worth. That is to say, if gasoline prices go up suddenly, the money that you are paying for gasoline out of your pocket has changed, and that change is immediately felt in your pocketbook, and to ignore that change as being volatile or seasonal or whatever, misses the entire point.
While it is a given, that calculating the CPI is not going to ever be easy, no matter how it is done, it becomes even more problematic when one recognizes that consumers are intelligent enough to adjust or downsize in response to certain trends or unexpected things. For instance, if meat suddenly becomes super-expensive because of a massive recall of beef contaminated with e-coli, then a certain percentage of consumers will probably purchase less meat and find instead meat substitutes. In fact, this is going to be true of a lot of consumer items and that change in consumer habits, whether temporary or permanent, trending for a short period of time or not, is extremely difficult to quantify, yet somehow that must be accounted for in order to quantify and/or qualify the appropriate current inflation rate.
The fact is that consumers have a lot of discretion on a lot of things that they purchase or utilize on an everyday level, but conversely there are also certain items and things that they have very little flexibility on, and it is these items especially that the government should pay careful attention to; which would in particular be housing, taxes, insurance, healthcare, and energy. These items should actually be the main ingredient of true core inflation and should be monitored, smoothed, and adjusted as necessary, but however that is done by those economists the end result must accurately reflect and be accounted into the official government CPI level.
Instead, we are basically given information about inflation which strips out the most meaningful components to the index because the government for whatever reasons does not want to own up to any inconvenient truths. For instance, in 2008, both housing and oil plummeted to phenomenal depths over a very short period of time, with the Case–Shiller housing index dropping from 170.09 in 2007 to 133.97 in 2008, as for oil it was price at $97.91 on January 4, 2008 and closed at $44.60 on December 31, 2008. The government, however, claimed that the inflation rate for 2008 was 0.1% which was absolutely ludicrous, considering that housing and energy both cratered, as well as the fact that America verged on the edge of a financial meltdown.
In summary, this means that the CPI index as published is in actuality a shell game, with the basic thought process being that in order to prevent panic or uprising by the population at large, keep giving the credulous public that same old song and dance.