CPI is a mythical number, inflation is not!
<<We have quite as interesting sitution. The CPI is a weighted index, but quite unlike, say the nasdaq where stocks with rising prices slowly begin to dominate the index due to their higher market cap. The way in which the CPI is constructed goods with rising prices have their weight reduced, while those with falling prices have their weight increased. To illustrate how this might work, consider a simplified CPI that consists a technology component and an energy component with equal bias. In time period one, a computer costs $1000, while a gallon of fuel coats $1. The "basket" of goods consists of 1000 gallons of fuel and 1 computer. In time period two, the computer now costs $500, while a gallon of fuel costs $2. The "Basket" of goods is now readjusted to 500 gallons of fuel and 2 computers. You get the picture?
But it still only takes 1 computer to do your job, and you still need the same amount of fuel to commute to work and back.
Food prices are rising, fuel prices are rising, technology is getting cheaper, so the CPI methodolgy assumes that you will eat less, travel less, and spend much more time surfing free internet sites like this. >>
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