Consumer price index Details, Meaning Consumer price index Article and Explanation Guide

Consumer price index Guide, Meaning , Facts, Information and Description

In economics, the Consumer Price Index (CPI) is a statistical measure of a weighted average of prices of a specified set of goods and services purchased by wage earners in urban areas.

A Consumer Price Index (CPI) or retail price index is a price index which tracks the prices of a specified set of consumer goods and services, providing a measure of inflation.

The CPI is a fixed quantity price index. Due to continual research and refinement of index estimation procedures, such as hedonic regression, changes in the quality of priced goods and services are separated from changes in the price of such goods and services. The CPI is revised on an continuing basis to compensate for the introduction of new products and outlets.

In the USA, CPI figures are prepared monthly by the Bureau of Labor Statistics of the United States Department of Labor. Further explanation of the CPI, as well as current and historical data, are available at the Bureau's website: www.bls.gov

Table of contents

1 From the BLS Web site

1.1 Coverage
1.2 Sources of data
1.3 Reference period
1.4 Forms of publication
1.5 Major research in progress

2 See also
3 External links

From the BLS Web site

Coverage

The CPI represents changes in prices of all goods and services purchased for consumption by urban households. User fees (such as water and sewer service) and sales and excise taxes paid by the consumer are also included. Income taxes and investment items (like stocks, bonds, and life insurance) are not included.

The CPI-U includes expenditures by urban wage earners and clerical workers, professional, managerial, and technical workers, the self-employed, short-term workers, the unemployed, retirees and others not in the labor force. The CPI-W includes only expenditures by those in hourly wage earning or clerical jobs.

Sources of data

Prices for the goods and services used to calculate the CPI are collected in 87 urban areas throughout the country and from about 23,000 retail and service establishments. Data on rents are collected from about 50,000 landlords or tenants.

The weight for an item is derived from reported expenditures on that item as estimated by the Consumer Expenditure Survey.

Reference period

Prices are taken throughout the month.

Forms of publication

--Monthly news release. Consumer Price Index. Electronic access available. --Historical data in Handbook of Labor Statistics. Electronic access available. --Diskettes --"LABSTAT" database.

Uses --As an economic indicator. As the most widely used measure of inflation, the CPI is an indicator of the effectiveness of government policy. In addition, business executives, labor leaders and other private citizens use the index as a guide in making economic decisions. --As a deflator of other economic series. The CPI and its components are used to adjust other economic series for price change and to translate these series into inflation-free dollars. --As a means for adjusting income payments. Over 2 million workers are covered by collective bargaining agreements which tie wages to the CPI. The index affects the income of almost 80 million people as a result of statutory action: 47.8 million Social Security beneficiaries, about 4.1 million military and Federal Civil Service retirees and survivors, and about 22.4 million food stamp recipients. Changes in the CPI also affect the cost of lunches for the 26.7 million children who eat lunch at school. Some private firms and individuals use the CPI to keep rents, royalties, alimony payments and child support payments in line with changing prices. Since 1985, the CPI has been used to adjust the Federal income tax structure to prevent inflation-induced increases in taxes.

Major research in progress

--Continuing research on technical improvements in the calculation of the CPI --Continuing work on the next major weight revision of the CPI

In 1995, the Boskin Commission found it to be a biased measure, and gave a quantitative analysis of the bias. The Boskin critique helped to spur some changes in the US CPI although it was partially disputed by the BLS. Many of the changes were aimed at moving the CPI to a cost of living model which takes consumer substitutions into account and typically reduces the reported level of inflation.

External links

U.S. Consumer Price Index webpage

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