dwot (99.54)

CPI weighting

May 13, 2008 – Comments (4)

Bill Fleckenstein is an excellent economist to follow and his piece yesterday has some interesting tidbits of information.

He says that 80% of the population spends 20% or more of their income on food yet the CPI only has an 8% weighting for food.  That makes me wonder just what the income at the 80% level is and if it is at 20% there, what the heck is it in the bottome 20%, or the second from the bottom 20%.  What percent of my income do I spend on food by comparison?  I must be lucky, about 8% of gross or 12% of net if you don't count eating out (not that there is a single restaurant in town) and dumb stuff like buying a $4 ice cream bar (they cost that much here...).  He says paycheque and does that mean net income?  It is expensive where I am, but wages are also good. 

I did find an income distribution for Canada.  Looking at that I think stating that 80% of the population spends 20% or more of their income on food can't be right.  My spending for 20% actually comes in in the middle 20%.  So, I'm female and not buying food for a family, but still, I do not accept that statement.  I could accept 70%.  It is still a statement of how much the CPI weighing hurts the poor compared to the well off.

I've not been a supporter of percent wage increases.  It increasingly separates the haves from the have nots.  If you aren't making enough to pay the bills and your wage increase is matched to the CPI you are further behind.  Look at the $10/hour worker.  A 2% increase gives them 20c per hour, or $416/year.  A wage increase that is partly flat and partly a percent would be a far more fair way of giving out wage increases, for example, $500 + 1%.  With this distribution, wage earners under $50k would do better and those over $50k would do worse.  I personally do not think this is enough of an increase for anyone with how much costs have increased lately, it is just an example of bringing more fairness to wage increases.  Or even $250 + the percent increase.  For the $100k worker it is a mere 1/4%, but for the low wage earner it is over 1%.