Everyday Price Index Shows Why Leaders Shouldn't Focus On CPI

In terms of our everyday purchases, the CPI seems to underestimate inflation. Here are some stats to back this up.

The American Institute for Economic Research (AIER) has an inflation index that it calls the Everyday Price Index (EPI). This AIER article explains the EPI and how much the EPI and CPI correlate:

From January 1987 to December 2011, the CPI roughly doubled: it increased from 100 to 202.9. During the same time, the EPI increased substantially more—from 100 to 234.5. This translates into an inflation rate of about 2.9 per year on average for the CPI and 3.6 per year on average for the EPI.

However, there has been a much larger difference between the CPI and EPI over the last year:

This weighting results in a 2011 average annual inflation rate of 8 percent as measured by the Everyday Price Index, compared to a mere 3.1 percent from the CPI.

The aier.org site went down yesterday, and it's still down as of this morning. Hopefully, it'll be back up soon.

Here's another article at MSN with a discussion of the EPI. It's more critical of the index, but the AIER representative makes the point that the EPI isn't intended to replace the CPI. The intent is to show the inflation people feel in their everyday lives.