Consumer price index

From Economypedia.com

Consumer price index (CPI) reflects an economy’s inflation rate. Statisticians first choose a representative basket or list of consumer goods and services used by households. CPI is weighted average of prices of this consumption basket. A typical consumption basket used for CPI calculations includes heads like transportation, medical care and food. Each of these items is given weightage as per their relative importance. Determination of items for this representative consumption basket is extremely important. For this, family budget enquiries are conducted from time to time.

Thus CPI is essentially a price index. Percentage change in value of consumer price index is used for measuring inflation (or deflation as per existent situation). Consumer price index is also known as ‘headline inflation’. It is normally computed monthly or at certain times quarterly. ^[1]

Contents 1 Cost of living index 2 Base period 3 See also 4 References 5 External links 6 Further readings

[edit] Cost of living index

Cost of living index (CLI) is often confused with consumer price index in common parlance. But put simply cost of living index is a comprehensive term. It includes consumer price index and some more things. CLI is a measure of relative change in money required to get equivalent levels of satisfaction under two varying or different situations.

Calculation of CLI includes following groups.

• Food
• Clothing
• Fuel
• Lighting
• House rent
• Miscellaneous

[edit] Base period

Consumer Price Index is normally calculated for urban areas. CPI can be calculated by using both base year and chained system method. Base year refers to concerned index reference period. Base period thus forms basis of comparison. Base period price level is conventionally taken as 100. Current period prices are expressed relative to base period prices. A ‘normal’ period in recent past is selected as base period. Normal here means a period, which is devoid of things like unnatural price fluctuations (due to boom or depression), war or any natural calamities like famine or flood.^{[2] [3]}

[edit] See also

• Inflation
• Deflation
• Demand forecasting

[edit] References

1. ↑ Investopedia.com [1]
2. ↑ Answers.com [2]
3. ↑ wWisegeek.com [3]

[edit] External links

• Article in Minneapolisfed.org
• OECD Consumer price index statistics

[edit] Further readings

• Article in Bls.gov