inflationcpi - Inflation and the CPI Jos R. Rodrguez Sols...

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Inflation and the CPI José R. Rodríguez Solís
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THE CONSUMER PRICE INDEX Consumer Price Index (CPI) is a measure of the average of the prices paid by urban consumers for a fixed market basket of consumer goods and services. The BLS calculates the CPI every month. We can use these numbers to compare what a fixed basket of goods costs this month with what it cost in some previous month.
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THE CONSUMER PRICE INDEX Reading the CPI Numbers The CPI is defined to equal 100 for a period called the reference base period. Reference base period is a period for which the CPI is defined to equal 100. Currently, the reference base period is 1982 1984.
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THE CONSUMER PRICE INDEX In August 2007, the CPI was 207.9. The average of the prices paid by urban consumers for a fixed market basket of consumer goods and services was 107.9 percent higher in August 2007 than it was on the average during 1982 1984. In July 2007, the CPI was 208.3. The average of the prices paid by urban consumers for a fixed market basket of consumer goods and services decreased by 0.4 of a percentage point in August 2007.
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THE CONSUMER PRICE INDEX Constructing the CPI Three stages: Selecting the CPI basket Conducting the monthly price survey Calculating the CPI
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THE CONSUMER PRICE INDEX The CPI Basket Make the relative importance of the items in the CPI basket the same as in the budget of an average urban household. The CPI is calculated each month, but the CPI basket is not updated each month. The current CPI basket in 2007 is based on information obtained from the Consumer Expenditure Survey conducted during 2005.
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THE CONSUMER PRICE INDEX This figure shows the CPI basket. This shopping cart is filled with the items that an average household buys .
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THE CONSUMER PRICE INDEX The Monthly Price Survey Each month, BLS employees check the prices of the 80,000 goods and services in the CPI basket in 30 metropolitan areas. Because the CPI measures price changes, it is important that the prices recorded refer to exactly the same items.
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THE CONSUMER PRICE INDEX Calculating the CPI The CPI calculation has three steps: Find the cost of the CPI basket at base period prices. Find the cost of the CPI basket at current period prices. Calculate the CPI for the base period and the current period. Table on the next slide shows a simplified CPI calculation in which we assume a base period of 2005.
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THE CONSUMER PRICE INDEX
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THE CONSUMER PRICE INDEX CPI = Cost of CPI basket at current period prices Cost of CPI basket at base period prices x 100 For 2005, the CPI is: = 100 $50 $50 x 100 For 2008, the CPI is: = 140 $70 $50 x 100
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THE CONSUMER PRICE INDEX Measuring Inflation Inflation rate
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This note was uploaded on 04/11/2009 for the course ECO 201 taught by Professor Abc during the Spring '08 term at Northern Virginia.

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inflationcpi - Inflation and the CPI Jos R. Rodrguez Sols...

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