Does CPI or Consumer Price Index Tell You About Inflation?

Consumer Price Index

Does CPI Tell You About Inflation?

CPI, stands for Consumer Price Index, The people of the United States of Amerian are well aware of this term and they know it , as inflation rate. It is the universal truth that, Inflation can has had destructive effect on any country’s economy, so ICP , is one of economic indicators which is closely watched.


The Bureau of Labor’s Statistic , that is used to measure changes in price of consumer good in the USA. That Bureau discharges the CPI approximately in the middle of every month for the preceding month.

This market basket of consumer services and goods holds different kind of services and goods .The range of these goods and services is, from low-priced to high-priced. These goods and services come from large and small stores as well as from large and small communities.

Below mentioned two numbers are reported:

(CPI)Consumer Price Index
Core- Consumer Price (Core CPI)

“The Consumer Index Price” holds the entire basket of services and goods, whereas, the “Core (CPI)Consumer Price Index “rejects more unstable items like energy and food. That might shoot on a monthly basis. Most of the market observer gets more disturbed by the Core numbers.

The CPI is the most important economic indicator , because a rise , particularly in the Core CPI may push the Federal Reserves to increase the interest rates in order to avoid inflation out of control.

A large number of benefits like some contracts and Social Security have had a “living cost” provision, connected with the CPI.

CPI For Measuring Inflation Between Two Different Time Periods?
For calculating the inflation rate linking two time periods, first calculate change in the CPI index from former to a later period. The below mentioned example calculate CPI 1998 to 2003:

CPI Index in 1998 167.7
CPI Index in 2003 192.3
Varition in the Index 24.6
Calcularion (24.6 / 167.7) * 100 = 14.7)
change 14.7 %
Core CPI & Non-Core CPI

Inflation is measured by two ways first, Core ICP (Consumer Price Index )that does not include energy and food cost.,Second Non-Core ICP(Consumer Price Index), that includes every kind of things. Core CPI is considered more important because Federal Reserve uses it to make decisions that Fed funds rate should increase or not. Whereas Federal Reserve utilizes Core CPI for oil, gas and food .

What is Inflation

A rise in the prices of services and goods in any economy of the country is called inflation.

CPI-Comparative Price levels and Inflation

Inflation is measured by the CPI. If inflation is found in any country’economy, then the buying power of money drops , and people are not able to buy the same quantity of services and goods against the same quantity of money. On the other hand if there is deflation , prices of services and goods fall and make the consumer able to buy more services and goods by the same amount.

Conclusion

CPI is considered an important economic indicator for investors. When it does not come as per market expectation , a strong reaction can be seen .
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