Truflation Index Calculation
Remastering the CPI.
The US Truflation index deconstructs the CPI’s basket of goods categories and subcategories to reflect actual spending better. It also substitutes current data with carefully selected data sets gathered by our team or obtained from our partners at Penn State University (see Data Sources).
Truflation keeps the fundamental premise of the YoY CPI as the measurement of the percentage price change of goods and services between two consecutive years (year-over-year CPI).
CPI1 - the cost of the basket of goods at the year n+1
CPI0 - the cost of the basket of goods at the year n
The price of the basket is calculated as a weighted average of the product and services prices.
Unlike the CPI, the Truflation Index:
- measures the daily changes in inflation changes using the latest available data from independent, commercial and public data providers.
- changes the subcategories within categories of goods and services.
- substitutes the BLS data for categories and subcategories with daily price updates.
- since June 8, 2022 uses independent data weights based on vast consumer expenditures from 2021 census, mini census and high quality consumer and merchants surveys.
Weights of the goods and services also called relative importance, signify how prominent they are in consumers’ budgets. For example, around 42% of the 2021 govt CPI basket is devoted to Housing (rent, utilities, furniture, etc.), meaning the category significantly impacts the CPI result.
The relative importance allows for the calculation of the weighted average.
For example, if the prices of the products in the basket are 3, 10, and 50, and their relative importance is if the relative importance is 11%, 9%, and 32%, respectively, then the weighted average for one time period will be:
0.11x3 + 0.09x10 + 0.32x50
The result is then compared to a weighted average of the same product prices for another period, with new relative importance numbers for that period.
Due to changes in categories and subcategories, and the application of independent consumer trends, the Truflation data weights differ from the ones in the govt CPI basket.
The relative importance of goods in the BLS US CPI basket changes every few years, and will be changed Jan 2023 to 2021 consumer data.
The Truflation Index uses independent robust consumer trends to derive its weights, which we update each year. Our 2022 index used data from 2021. Our 2023 index will be using data from 2022.