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CFO6 - consumerpriceindex. onpricesrec

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The consumer price index is the way the government measures the general level of inflation is by the  consumer price index. This is important because it affects prices of goods and wages for the community. The producer price index is the economic indicator which gauges the average changes  on prices received by domestic producers for their output at all stages of processing. Often times there is an assumption that when there is a price change in the PPI that will be a similar  change in the CPI. This is not always the case. When the two measurements end up contradicting that  assumption by the actual movement of these indexes.  It is often asked what makes the consumer price index and the producer price index show different price  movements. The reports would appear to be similar. However, The reason is the conceptual and definitional difference between the two indexes. The  differences are consistent with the use of the two measurements. When looking at the main uses for the consumer price index and the producer price index we can see  some of the reason for the variation on the measurements. The primary use of the CPI is to adjust income and expenditure streams to take into account the cost of  living. The primary use of the producer price index it to deflate revenue streams, so that we may measure  growth in out put.  There are two critical areas that the differences can be listed under, those areas are:  The composition of the set of commodities and the services they include  The types of prices collected for these items The consumer price index observes price changes among a wide array of products in urban areas and  weighing these price changes by the share of income consumers spend purchasing them.
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