I am sometimes asked to name my favorite economic indicator. Don’t get me wrong – this does not come up in conversation all that often, although sometimes when a group of economists get together they talk about these things. I am not sure that I could pick my absolute favorite indicator although I am partial to the Consumer Price Index (CPI). Why? Well, the CPI measures the change over time in the prices paid for a “typical” group of goods and services. The CPI is a signal of inflation in the economy and is used for adjusting dollar values and cost of living calculations (including Social Security benefits).
In order to calculate the CPI, the U.S. Bureau of Labor Statistics surveys thousands of households across the country regarding how much they pay for items including food and beverages, housing, apparel, transportation, medical care, recreation, education and communication. It’s a good way to get a general sense of inflation, however I decided that it was time to add a SensitiveEconomist touch and create my own price index based on common ingredients that I purchase for my favorite foods.
I found inspiration from my favorite chocolate chip cookie recipe, and used its ingredients to create the price index. Here is how it works (the methodology): I looked for the lowest prices for each ingredient on Amazon.com (except for the local honey, because by definition I buy it locally). Then I calculated how much of each ingredient I use in one batch and multiplied that ratio by the total price I paid for the entire container. Summing up the prices per batch of all the ingredients results in how much it costs me to bake one batch of cookies. Over time I can check the prices and see if the price per batch rises or falls. To see my calculations, view my excel file: Price Index 2012-Feb
The first Cookie Price Index shows that it costs $13.37 to bake one batch of these fabulous, delicious chocolate chip delights (about 32 cookies)! That’s less expensive than buying cookies from a bakery or specialty shop. It will be interesting to see how this tracks over time and if it corresponds at all with the federally-published price indices.
SensitiveEconomist 