Consumer Price Index (CPI)
What are the two main qualifications households must have in order to be included in the CPI-W?
-at least 50% of the household income is from clerical or wage paying jobs -at least one of the household's earners must have been employed for at least 50% of the year.
What is the base year for CPI according to the BLS? What was the CPI of this year?
1982 = 100 CPI
What is the ideal inflation rate that Central banks of developed economies, including the Federal Reserve in the United States, generally aim to maintain?
2%
What is a "basket" of goods and services?
A basket of goods are the final products consumers buy that determine the rate of inflation.
If today's CPI was 225, how much inflation has risen?
Because base year 1982 = 100 CPI Inflation has risen by 125%
Who keeps track of the basket of goods to evaluate CPI?
Bureau of Labor Statistics (BLS)
How does the gov't track the basket of goods? How often do they do this and about how many prices are recorded?
By visiting retail stores, service companies, rental units, and doctors' offices nationwide to collect data on the prices of products and services. For online outlets, point of purchase surveys (POPS) are used to collect data. Each checkup collects data on items that were researched previously so that any changes in quantities or prices are recorded. This is done monthly, and the prices of about 80,000 items are collected
CPI formula
CPI = (C/B) x 100 C = current cost of basket B = base cost of basket
Why does the gov't monitor CPI and inflation?
CPI is an indicator that people have confidence in the economy and are willing to spend. By monitoring the CPI and inflation, governments and central banks can set monetary policies.
Which CPI reflects changes in the cost of benefits and calculates future contract obligations?
CPI-W
Difference between CPI-W and CPI-U
CPI-W measures the cost benefits of those who work clerical or wage occupations and are on social security. CPI-U measures the expenditures of the broader population, such as people in poverty, the unemployed, and the retired. Also includes wage/clerical earners.
What are the two types of CPI? What do they measure? How much of the population do these groups make up? What three groups does CPI not take into account?
CPI-W: measures the CPI for Urban Wage Earners and Clerical Workers CPI-U: measures the CPI for Urban Consumers. CPI-W = 28% of US population CPI-U = 88% of US population CPI does not keep track of the expenditures of people living in rural/agricultural areas, the Armed Forces, or institutions like prisons or mental hospitals
The Bureau of Labor Statistics breaks down the CPI based on major Census regions, and major Metro areas each month. What are the four census regions? What are the three metro areas?
Census regions: Northeast Midwest South West Metro Areas: Chicago-Gary-Kenosha Los Angeles-Riverside-Orange County New York-Northern NJ-Long Island.
What is the average change in prices over time that consumers pay for a basket of goods and services?
Iflation
The all-urban consumer population consists of all urban households in
Metropolitan Statistical Areas (MSAs)
What is the relationship between CPI and inflation?
Rising CPI = rising prices of goods/services = rising inflation
What does the BLS include when calculating CPI? What do they NOT include?
The BLS includes sales and excise taxes that are directly associated with the price of everyday consumer goods and services It exclude items unrelated to consumers' day-to-day consumption such as income, Social Security taxes, investments, stocks/bonds, life insurance, and real estate
What is one of the most frequently used statistics for identifying periods of inflation or deflation.
The Consumer Price Index (CPI)
From mid-2017 to mid-2018, the CPI in the United States increased by 2.8%, which was the fastest rate of increase since 2012. The government credited this increase to the rising cost of gas, medical care, housing, and rent prices. What did this increase in CPI imply?
This increase in the CPI implied inflation when prices in the basket of goods rose.
Would CPI track the expenditures of these groups? Yes or No. a) farm families b) prisoners c) self-employed workers d) soldiers e) unemployed people f) retired people g) professionals h) people in poverty i) psychiatric patients
a) no b) no c) yes d) no e) yes f) yes g) yes h) yes i) no
What are some examples of basket goods and services?
everyday items like food, clothing, furniture, and transportation other ex: medical care, recreational expenses, admissions to museums, Education and communication expenses, random items such as tobacco, haircuts, and funerals.
CPI-U operates as an indicator of the effectiveness of
government fiscal and monetary policy.
What two things does CPI help measure?
inflation and the purchasing power of a country's currency
What does it mean if the price of the basket of goods increases by 2% in a year?
inflation is 2%.
Changes in the CPI are used to assess price changes associated with the cost of _______
living
When and why are basket goods and service adjusted?
on a regular basis whenever a change in consumer habits is detected
What is the international price program?
produces the U.S. Import and Export Price Indexes (MXP), which measures the change in the prices of goods and services imported into and exported from the United States
Why does the BLS still use CPI-W instead of just using CPI-U?
the BLS uses the CPI-U to track spending/prices in geographic areas. They use the CPI-W to see how the spending habits of the wage earners differ from the overall consumer population.
What is Consumer Price Index (CPI)
the average change in prices for a basket of goods and services
What is the cost of living
the cost of food, clothing, shelter, and other essentials people need