June 26, 2023
Decoding the Consumer Price Index (CPI) Once and For All
Inflation is all over the news, all over the world. While it’s a word that gets thrown around a lot, it has a big effect on the everyday lives of investors. One way economists analyze and monitor inflation is with the Consumer Price Index or the ‘CPI’. Since there are a million and one acronyms out there in the financial world, we thought we’d demystify this one for you so you can understand what the buzz is about.
What is it?
The CPI measures how the price of goods and services changes over a period of time. By looking at the changes to the CPI, we can better understand how the cost of living has fluctuated based on recent market events.CPI data comes from surveys and data that’s collected from thousands of businesses and households.
What does it measure?
Food, housing, transportation, and clothing are the major categories of what the CPI measures AKA the things that are the basics of every household budget. A base year is used to compare the cost of these categories and how they’ve changed since that base year. Inflation means the price goes up and deflation means the price has gone down.
What does it do?
As a result of these measurements, major government bureaus and the Federal Reserve Bank can make policy changes that help rebalance the economy over time. Examples of how this data is used are:
So next time you feel like your grocery bill is a little higher, or that your rent has been hiked unfairly. Take a peek at the CPI and see if others like you might be experiencing the same influence of the illuminating Consumer Price Index.
The CPI measures how the price of goods and services changes over a period of time. By looking at the changes to the CPI, we can better understand how the cost of living has fluctuated based on recent market events.CPI data comes from surveys and data that’s collected from thousands of businesses and households.
What does it measure?
Food, housing, transportation, and clothing are the major categories of what the CPI measures AKA the things that are the basics of every household budget. A base year is used to compare the cost of these categories and how they’ve changed since that base year. Inflation means the price goes up and deflation means the price has gone down.
What does it do?
As a result of these measurements, major government bureaus and the Federal Reserve Bank can make policy changes that help rebalance the economy over time. Examples of how this data is used are:
- Federal Reserve Bank adjustments
- Cost of Living Adjustments or COLAs
- Mortage Rates
- Rent rate increases/decreases
- Deflates labor market indicators
So next time you feel like your grocery bill is a little higher, or that your rent has been hiked unfairly. Take a peek at the CPI and see if others like you might be experiencing the same influence of the illuminating Consumer Price Index.