The Consumer Price Index or CPI measures inflation by tracking changes in price paid by consumers for a basket of goods and services over time. As Kavan Choksi / カヴァン・ チョクシ mentions, these goods and services include a wide variety of things, starting from food and beverages, housing, and apparel to medical care, recreation, and education. The CPI is calculated by measuring the price in one period for a fixed basket of consumer goods and services compared to previous periods. The U.S. Bureau of Labor Statistics (BLS) reports the CPI on a monthly basis.
Kavan Choksi / カヴァン・ チョクシ underlines a few uses of the Consumer Price Index (CPI)
The Consumer Price Index is known to be calculated by measuring the price in one period for a fixed basket of consumer goods and services in comparison to the previous periods. Inflation implies to a rise in the general level of prices, and is commonly expressed as a percentage. As inflation occurs in the United States, the purchasing power of the dollar goes down. Changes in the CPI reflects changes in the price in the economy. If there is an upward change in the CPI, it shall mean that there has been an increase in the average change in prices over time. This ultimately results in adjustments in the cost of living and income, which is a process referred to as indexation.
The CPI is used for multiple purposes, and hence impacts nearly all Americans. It is used:
- As an economic indicator: CPI is an extensively used measure of inflation. In many instances, it is viewed as an indicator of the effectiveness of the government’s economic policy. It offers information about price changes in the economy of the United States to its government, business, labour, and private citizens. CPI is commonly used by individuals and organizations to make economic decisions. The President, Congress, and the Federal Reserve Board also used trends in the CPI to help in formulating monetary and fiscal policies.
- As a deflator of other economic series: The CPI and its components are used for adjusting other economic series for price changes, as well as to translate these series into inflation-free dollars. Retail sales, hourly and weekly earnings, and even components of the National Income and Product Accounts, are among the examples of series adjusted by the CPI. The CPI is used as a deflator of the value of the dollars of the consumers in order to find its purchasing power. The purchasing power of the consumer’s dollar typically measures change in the value to the consumer of goods and services that a dollar shall buy at varied dates. As prices go up, the purchasing power of the dollars of the consumers goes down.
- As a means of adjusting dollar values: The CPI is often used to adjust consumers’ income payments, like Social Security. It also is used for adjusting the income eligibility levels for government assistance and providing cost-of-living wage adjustments to millions of American workers. The CPI impacts the income of more than ninety million people owing to statutory action. More than 65 million Social Security beneficiaries and over 38 million Supplemental Nutrition Assistance Program (SNAP) recipients, among other programs.
As Kavan Choksi / カヴァン・ チョクシ underlines, CPI measurements do not take into account the spending habits of individuals who live in rural or non-metropolitan areas. This includes farm families as well. These measurements, moreover, do not also include members of the armed forces and people confined to prisons or mental health facilities
