Consumer Price Index (CPI)

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Consumer Price Index (CPI)

Consumer Price Index examines the average price of a basket of consumer goods and services, like food, transportation, and medical care. To calculate CPI, consider price changes of each item in the basket of goods and average them. Changes in CPI associates with the cost of living. Consumer Price Index mostly used to identify periods of inflation or deflation. 

 “Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.” –Sam Ewing

The U.S. Bureau of Labor Statistics(BLS) calculates CPI monthly. Inflation Rate is the changes in the prices of goods and services, and it reflects inflation trends in an economy. The basket of goods does not include items with volatile prices such as food items and energy products etc. Inflation is the measure of tendency in rising prices.  

 Characteristics of Consumer Price Index

Here are some key features of the Consumer Price Index.

 

  •  Price of the basket

 

Consumer Price Index is a measure to examine the average price of a basket that contains goods and services.  In this basket, some goods and commodities have very fluctuating prices. It does not include items with volatile prices such as food items and energy products etc. 

 

  • Cost of living

 

Changes in the CPI used to assess price changes associated with the cost of living. It automatically provides the cost of living wage adjustment to domestic workers.

 

  • Inflation

 

To identify the period of inflation, economists use the Consumer Price Index. Since the inflation rate contains both temporary and permanent components. 

 

  •  Economic Indicator

 

CPI widely determines the level of consumers’ income. If the consumer’s income doesn’t change, but the prices of products and services increases, then the consumers will have less purchasing power. So it is an economic indicator. 

 

  • Two-Types

 

Two types of CPI reported each time. CPI-W measures CPI for Urban Wage Earners and Clerical Workers. However, the CPI-U measures the CPI for Urban Consumers. 

 

  •   Idea About Prices

 

It gives insights to businesses, governments, and citizens about price changes in goods and services. It also reflects inflation trends in an economy.

 

  •  Purchasing Power

 

To determine the purchasing power of consumers, economists use CPI. It includes retail sales, hourly or weekly earnings, and the value of the consumer’s dollar. 

 

  • CPI Statistics

 

CPI Statistics cover professionals, self-employed, unemployed, retired, and economically weak people. Those people who are from non-metro or rural populations, armed forces, and farm families excluded from the report.