Numbers #1: Consumer Price Index (CPI)

The Consumer Price Index or CPI is quoted extensively by the media and used by the financial community in their economic reports. The CPI is a way to measure inflation.

Indicator Name:          Consumer Price Index or CPI

Published by:              U.S. Dept. of Labor, Bureau of Labor Statistics

Publishing Calendar:   Monthly

Website:                      http://www.bls.gov/cpi/

Frequently Asked Questions (FAQ) web page: http://www.bls.gov/cpi/cpifaq.htm

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.

Source: http://www.bls.gov/cpi/cpiovrvw.htm#item2

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.

Source: http://www.bls.gov/cpi/cpiovrvw.htm#item5

Author Addendum (9/13/15): Mark Koba of CNBC wrote an article explaining the CPI: Consumer Price Index: CNBC Explains.

Rationale for the By the Numbers blog postings.

 

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