The Consumer Price Index: An In-Depth Guide
What is the Consumer Price Index (CPI)?
The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. The CPI is calculated by the U.S. Bureau of Labor Statistics (BLS) and is a key indicator of inflation in the U.S. economy.
How is the CPI Calculated?
The CPI is calculated by tracking the prices of a fixed basket of goods and services purchased by urban consumers. This basket includes items such as food, housing, transportation, and medical care.
The CPI is calculated using a weighted average of the prices of these items. The weights are based on the relative importance of each item in the consumer budget.
What is the Purpose of the CPI?
The CPI is used to measure changes in the cost of living for urban consumers. It is also used to adjust wages, salaries, and other payments to account for inflation.
The CPI is also used by policymakers to make decisions about economic policy.
What are the Limitations of the CPI?
The CPI is not a perfect measure of inflation. It does not include all goods and services purchased by consumers, and it does not account for changes in quality.
The CPI can also be volatile, especially in the short term. This is because the prices of some items, such as food and energy, can fluctuate significantly.
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