How Consumer Price Index(CPI) helps lay the foundation for various outcomes in today’s economy.
Consumer Price Index (CPI), one of the most frequently cited indicators in the world, averages change over time in the prices consumers pay for a basket of consumer goods and services. The CPI is measured monthly by the Bureau of Labor Statistics (BLS) and is also one of the main indicators to measure inflation and deflation in the economy. Inflation describes a situation where prices tend to rise. Deflation is a reduction in prices. Prices for the goods and services used to calculate the CPI are collected in various areas throughout the country and from about 23,000 retail and service establishments. Data on housing rent are collected from about 50,000 landlords or tenants.
The CPI is calculated for two population groups: All Urban Consumers (CPI-U) and Urban Wage Earners and Clerical Workers (CPI-W). CPI-U represents about 93% of the US population, and CPI-W represents the expenditures of families living in urban areas who meet additional requirements related to employment. When CPI is calculated, user fees and sales or excise taxes are also accounted for. However, income taxes and the prices of investments such as stocks, bonds, or life insurance policies are not part of the CPI.
How Is the Consumer Price Index (CPI) Used?
Businesses and consumers also use the CPI to make informed economic decisions. It is also often a key factor in pay negotiations for companies and employees. Many workers are covered by collective bargaining agreements that tie wages to the CPI. Government officials also use CPI in making key decisions. Although CPI is based on consumer spending, it doesn’t track third-party reimbursements for healthcare and underweights healthcare relative to its proportion in the GDP. Over the 12 months ended June 2022, the CPI for All Urban Consumers increased by 9.1 percent, the largest jump in 40 years. Here are a few of the CPI statistics since 2021: Food prices increased 10.4 percent for the 12 months ending June 2022, the largest increase since February 1981. Prices for food at home rose 12.2 percent over the last 12 months, the largest increase since April 1979. Food prices away from home rose 7.7 percent, the largest 12-month change since November 1981. As of July 2022, the CPI for all Urban Consumers was unchanged. The CPI for August 2022 is scheduled to be released on September 13, 2022.
