Yesterday’s post argued that a national aggregate can accurately represent no one’s actual experience when the underlying data are structured the right way — or, more precisely, the wrong way. The incarceration example was instructive precisely because it was symmetrically uncomfortable: the same Simpson’s paradox that embarrasses the reform-is-working narrative also embarrasses the cities-are-dangerous one. Nobody was being served by the aggregate. It was just leaking information in both directions simultaneously.

Today’s example has the same formal structure and considerably sharper politics.

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The February Consumer Price Index came in at 2.4 percent year-over-year — right in line with expectations, “tame” in the words of one analyst, and a figure that has been used, with some justification, to argue that inflation is under control. Shelter — the single largest component of the index, accounting for roughly a third of its weight — rose 3 percent annually and was the largest contributor to the monthly increase. Gasoline fell about 5.6 percent year-over-year, a meaningful downward pull. Food was up 3.1 percent. Apparel jumped 1.3 percent in February alone, the largest monthly gain since September 2018.

So far so good. The CPI is doing exactly what it is designed to do: aggregating price movements across a basket of goods into a single number. The question worth asking — which the CPI is not designed to answer — is whose basket.

The CPI-U covers “all urban consumers.” Its weights reflect how much the average urban consumer spends in each category, based on expenditure surveys updated annually. This means the index gives heavy weight to gasoline because the average urban consumer spends a meaningful share of income on it. It gives even heavier weight to shelter because housing is a large share of almost everyone’s consumption. When gasoline falls sharply, it pulls the index down in proportion to how much the average consumer spends on gas. When shelter rises moderately, it pushes the index up in proportion to its share of average expenditures.

Here is the problem. “Average” is doing a lot of work in that sentence, and it is not doing it evenly. Gasoline price movements disproportionately affect households that buy a lot of gasoline — which correlates strongly with income, geography, and commute patterns. A drop in gasoline prices is a real benefit to a two-earner suburban household with long commutes and a larger vehicle. It is a smaller benefit, or none at all, to a lower-income urban household that relies on transit. The CPI credits gasoline’s decline to everyone’s inflation rate in proportion to average expenditure. For households whose actual gasoline consumption is well below average, that credit is fictional.

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The tariff layer makes this considerably less abstract. The Yale Budget Lab’s most recent analysis finds that the current tariff regime raises prices about three times more for households in the bottom income decile than for households in the top decile, expressed as a share of post-tax income. The average household loses somewhere between $600 and $800 in purchasing power annually under the current regime. For households at the bottom of the distribution, the loss is proportionally larger; for households at the top, smaller.

The CPI will absorb all of this as a modest, broadly distributed price increase — because the CPI is an expenditure-weighted average, and expenditure-weighting assigns more influence to the consumption patterns of households that spend more. In a sufficiently skewed income distribution, the expenditure-weighted index can be simultaneously below the personal inflation rate experienced by the median household and well below the rate experienced by the bottom two quintiles. This is not a measurement error. It is a design choice. The index was designed for monetary policy and Social Security cost-of-living adjustments, not as a comprehensive account of household welfare, and the BLS says so, quietly, in their own documentation.¹

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The formal point is the same one from yesterday: the aggregate is not wrong. It is accurately computing what it was designed to compute. What it cannot do — given its construction — is tell you whose experience is being tracked. A headline inflation rate of 2.4 percent coexists, right now, with a tariff regime hitting the lowest-income households at roughly three times the rate of the highest-income ones, a food index up over 3 percent, and an energy price shock from the Iran conflict that had not yet registered in February’s numbers and will in March’s.² The aggregate smooths all of this into a single, manageable-sounding figure.

All statistics are local. The national average is not your neighbor’s experience, and it is increasingly not yours either.

With that, I leave you with this.³

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¹ The BLS notes explicitly that the CPI-U “is not applicable to all consumers and should not be used to determine relative living costs.” The Chained CPI (C-CPI-U) attempts to account for substitution behavior — when gasoline gets expensive, people drive less; when beef gets expensive, people buy chicken — and is a closer approximation to a cost-of-living index. But it is issued with a time lag, is less widely reported, and rarely makes it into the headline discussion. The index that shapes public perception of inflation is the one that was designed for a different purpose.

² EY-Parthenon estimates headline CPI will rise to roughly 3.3 percent in March, driven primarily by the energy shock. The February report, as J.P. Morgan’s senior markets economist put it, is “a bit stale at this point.” The gap between the headline number and the lived experience of households at the bottom of the income distribution will widen before it narrows.

³ Dolly Parton, “9 to 5.” The paycheck never seems to stretch as far as the index says it should.