Rising Food, Gas Prices Fuel CPI

Buying Frosted Flakes and a tank of gas for your family minivan will cost you more soon, but don't call it inflation -- at least not if you're at the Fed.

While the costs of putting food on the table and getting to the grocery store, work or school are part of all Americans' everyday lives, the Federal Reserve actually excludes gasoline and food in its main measuring stick for inflation, known as "core inflation."

Economists also tend to ignore food and energy, with the reasoning that the prices are so volatile that it doesn't give an accurate read on "real" inflation.

But it's those weekly trips to the grocery store and the gas station that determines whether people have money left over to buy iPods, computers, vacations, clothes and cars. Consumption drives the U.S. economy. So when the Fed says core inflation is moderating, as it did on Tuesday, the average person may have been confused.

"We never recommend people use all items less food and energy," said Todd Wilson, an economist at the Bureau of Labor Statistics. "The Federal Reserve was the ones who started the interest in core."

The bureau compiles the consumer price index, a broader inflation indicator that does include energy and food prices. One of the problems with core inflation, Wilson said, is that it "keeps inflation looking low," something belied by the most recent CPI figures.