The Bureau of Labor Statistics this month released the June 2004 results of its monthly assessment of average prices across the country, the Consumer Price Index. The typical economic and financial media outlets picked up the story and announced that CPI-U (Consumer Price Index for All Urban Consumers, which accounts for approximately 87 percent of the U.S. population) had increased by 0.3 since May 2004 and 3.3 percent since June 2003. However, there's more to consider.
To average consumers these numbers do not particularly mean very much, especially when they look in their wallets at the gas pump or the checkout counter at the grocery store. Using the CPI and combining it with the latest results of the Consumer Expenditure Survey (CEX 2002, also from the Bureau of Labor Statistics) it is possible to look at how much, in dollars, people are spending from a wide range of demographics. The CEX breaks out consumer spending by age and therefore, using the CPI from 2002 to work out how much average prices have changed, we can get a fairly good estimate of what consumers of different ages are likely to spend this year for different commodities and services.
The most noticeable trend identified in the assessment, if you
have not read or heard about this you must have noticed the last
time you filled up at the gas pump, was that energy prices are
soaring. The average index for all forms of gasoline is up 2.6
percent from last month, 17 percent since last June and has grown
almost 50 percent from the annual average in 2002. That amount of
growth is extremely bad news for consumers in the 35 to 44 and 44
to 54 age range, which, when combined, accounted for 34 percent of
all gasoline expenditures in the U.S. or an estimated $207 billion
this year, up almost $70 billion dollars from 2002. For each
individual in those age groups it means an annual increase of
gasoline expenses of over $1,400 since 2002.
Gasoline was not the only form of energy that has been taking larger bites out of consumers' bank accounts. Energy in the home, which includes natural gas, electricity, and other forms of fuel, was another index that has seen dramatic increases, up an average of 2.3 percent over last month and 22 percent since 2002. Housing energy will have a much more significant impact with older consumers than increased gasoline prices, as they are somewhat less mobile than there younger counterparts. The 65 to 74 age group accounted for 14 percent of U.S. expenditure on fuels for the home in 2002. If this trend continues, 65- to 74-year-olds could have to make room in their budgets for an additional $325 for their utility companies, when compared to 2002.
While fuel prices have been at extremely high levels, other consumer products and services are taking up less of consumers' budgets. Telephone service, for example, was down 0.1 percent since May and down almost 4 percent since 2002. This is good news for the younger more communications and technology savvy demographics. The 25 to 34 age group, which accounts for 17 percent of total U.S. spending on telephone service, could see $40 less of their money going to cell phone companies and other telephone service providers than in 2002. Quite a few of the technology sectors, like personal computers and peripheral equipment, have seen declines in prices in the past few months. Maybe, with the lower prices on high-tech commodities like phones and computers, consumers should avoid wasting gas and call family and friends on the phone instead.