Consumer Price Index

Consumer Price Index (CPI) is a statistical estimate that measures the average price of consumer goods and services purchased by households. The CPI is a significant indicator of inflation and purchasing power of a country's currency.

Overview

The Consumer Price Index is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. The goods and services included in the basket are determined by the Bureau of Labor Statistics in the United States. The CPI is used to adjust income eligibility levels for government assistance and to adjust income tax brackets to prevent inflation-induced increases in taxes.

Calculation

The CPI is calculated using a Laspeyres formula, which uses a fixed basket of goods and services. The basket is representative of the goods and services purchased by a "typical" consumer. The prices of the goods and services in the basket are collected periodically, and the changes in these prices are used to calculate the CPI.

Uses

The CPI is used for a variety of purposes, including:

• Adjusting income eligibility levels for government assistance programs
• Adjusting income tax brackets to prevent inflation-induced increases in taxes
• As a measure of inflation or deflation
• As a gauge of the effectiveness of government economic policy
• As a means of adjusting dollar values

Criticisms

There are several criticisms of the CPI, including:

• It does not account for changes in product quality
• It does not account for changes in consumer preferences
• It does not account for changes in the geographical distribution of consumption
• It does not account for the substitution effect

See also

• Inflation
• Deflation
• Bureau of Labor Statistics
• Laspeyres formula

Consumer Price Index Resources
Latest articles Most recent articles Ongoing trials	Wikipedia