Must-know: Why airfare and fuel affect the consumer price index

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The consumer price index

The consumer price index (or CPI) is a measure of the average price changes over time for goods and services purchased by households. The index includes a range of items that people use for day-to-day living—food, clothing, and shelter to fuel and transportation fares.

Two indexes that are included in the CPI and are related to the airline industry are airfare index and fuel index.

Airfare index

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The CPI includes airline fares as a component of the public transportation index. It includes prices of all scheduled domestic and international commercial airline trips on certified carriers from around 87 cities but excludes business trips. The airline fares index represented 0.742% of all items included in the index on December 2013. An increase in the index indicates that airline ticket prices are rising, and a decrease indicates a fall in ticket prices.

According to the Bureau of Labor Statistics (or BLS), the seasonally adjusted airfare index decreased by 5.9% to 312.24 in July 2014 from 331.77 in June 2014, after rising 10.9% in the previous five months. 

Energy index

The seasonally adjusted energy index decreased by 0.3% in July after rising for three months from April to June. The oil fuel index has been declining for the past five months since March, but the decline of 0.7% in July was the lowest in five months. But over the last 12 months, the unadjusted energy index has increased by 2.6% and the fuel index by 2.2%.

All airlines—including Delta (DAL), United (UAL), American (AAL), Southwest (LUV), and JetBlue (JBLU)—are negatively impacted by rising fuel costs and use derivatives to hedge against the risk of fluctuating fuel prices.

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