Taking apart the best-known measure of price inflation in the United States reveals what Americans spend their money on.
There are pages of products and services in the Consumer Price Index reports, from the fun stuff no one really needs to expensive items most of us do need. Unfortunately, it's the expensive ones, like used cars, that have shot up in price recently — and that's affecting some Americans more than others.
The index is weighted, of course, trying to provide an accurate picture of price changes for urban consumers when obviously some goods take a far bigger chunk of household budgets than others.
Women's shoes are more heavily weighted than men's shoes, for example. And the weight given to what Americans spend on cakes and cookies eaten at home rounds to zero. If cupcakes doubled in price, that's not going to increase the CPI enough for anyone to notice.
If used car prices skyrocket, though, that'll move the dial. And it has — to a degree that seems unbelievable until you pull apart the CPI.
The CPI, produced by the U.S. Bureau of Labor Statistics (BLS), isn't the only measure of inflation, but it's the one everyone knows. The index has increased 5.4 % in the last year, as of the latest monthly report.
Food obviously accounts for a lot of consumer spending. But that whole category is not as big as what's called "private transportation," which basically means cars and light trucks. New cars and gasoline are a big part of consumer spending in this category, but the BLS weights used cars and trucks enough to be 3.5% of the overall CPI.
Other items, like TVs, furniture and laundry equipment, were up by double-digit rates in the last CPI release, too.
Yet once you set aside products with really volatile prices, like gasoline, nothing has shot up quite like used car prices. They increased 24.4% in the September CPI report compared with the same month a year ago.
It's a big enough swing in a big enough CPI spending category that bond traders and other finance pros are now suddenly paying really close attention to a relatively unknown price indicator called the Manheim Used Vehicle Value Index.
Wholesale used vehicle prices increased 8.3% in the first half of October compared with September, Manheim Auctions, Inc. said in its latest release. That leaves the index up about 37% compared with the same period last year.
Inflation isn't just happening in the U.S. The European automotive industry has had roughly the same disruptions. Supply hiccups delayed new vehicle production, and like here, rental car executives in Europe slashed their fleets only to soon wish they still had those cars.
It turns out, though, that cars are way more important in American spending than they are in Europe. On the other side of the Atlantic Ocean, the Wall Street Journal reported, "consumers have delayed car purchases. In the U.S., they have bid the price of used cars up 42%."
That's why you hear so much about transitory inflation, which is the idea that these sharp price increases will slow down soon. It's hard for people to imagine bidding wars over four-year-old Ford Escapes continuing well into next year.
Some people don't buy cupcakes to eat at home, of course, and some Americans don't want to own a car, or may not be able to afford one.
In the Twin Cities, the recent inflation rate was in line with the national number. But in places like the San Francisco Bay area and New York inflation has been a lot tamer. One reason is that fewer people need a car to get around.
Depending on where you live in Minnesota, transportation might be the biggest line item in the family budget.
That includes Pine and Morrison counties north of the Twin Cities, where costs of over $1,000 per month make transportation more than 25% of a typical household's monthly expenditures, according to a Minnesota Department of Employment and Economic Development database, which outlines the living wage needed to meet basic needs by county. That easily exceeds that family's housing expenses.
Bear in mind, this was before used car prices soared.
Here in the Twin Cities there's not that much of a difference between a suburban county and the inner core counties when it comes to transportation and housing costs.
In both suburban Dakota County and in Ramsey County, the state's most densely populated urban county, housing costs made up about 22% of the basic cost of living while transportation was more like 14% in 2020.
Here's one interesting aspect about the estimated $775 that Ramsey County residents spend monthly to get around: an unsubsidized, go-anywhere monthly transit pass costs just $120. That means the people living in the densest county in the state must be driving cars.
In fact, we know they are. Just before the COVID-19 pandemic, more than 7 out of 10 Ramsey County commuters drove alone to work while only 7% took public transportation, according to the U.S. Census Bureau estimates.
I was one of the pre-pandemic 7% commuting by mass transit, trying to keep another carbon-dumping car off already congested roads. Since I got my transit pass, though, I've never once seriously considered selling my car.
Recent car trips into the suburbs from my St. Paul neighborhood have included Woodbury for an annual eye exam, Savage for a hike, Roseville for a Best Buy stop, then back to Woodbury to pick up a repaired vacuum cleaner.
Even closer to home, it's about three-quarters of a mile to the nearest coffee shop. That's easily walkable, if you have the time.
In our state's capital city, we don't live an urban lifestyle. We have a really nice suburban lifestyle.
It's hard to even imagine the changes that would have to take place in transportation and land use practices to make cars a wasteful luxury.
In the retirement household budget I've been tweaking now for about 10 years, there's a line for a new car. Last week I bumped it up $75 per month.