What is the Consumer Price Index (CPI)
The Consumer Price Index (the CPI) is an indicator of price inflation. Prices rise or fall for many reasons. To understand if prices are acting under inflationary pressure, the approach is to look at an aggregate of items (a basket of goods and services) and see how the overall price average of the basket is compared to a base level. The original basket of goods and services was created in 1967. The concept is that the basket of goods and services takes into account a great diversity of things, from a container of milk, to the purchase of an automobile; from non-tangibles such as medical expenses, recreation and energy costs.
Prices change differently within each sub section of the basket. Over the years the cost of computers has come down, the cost of health insurance has gone up, the cost of telephone service has flowered into many varieties, and so on.
The original basket of goods and services was determined in 1967 and the weighted average cost served as the baseline (baseline=100). The basket and baseline was updated in 1982. To determine the fluctuation of price from one current period to a previous one (for example this year to last year), the basket as it is priced this year and for last year are calculated against the baseline.
Take for example some recent figures, the basket price index for 2007 was 207.342 and for 2008 was 215.303. These numbers are offsets of the base index of 100. This is a price increase of 3.8%. You can calculate this with two different formulas:
The Consumer Price Index is reported by the Bureau of Labor Statistics
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The original basket of goods and services was determined in 1967 and the weighted average cost served as the baseline (baseline=100). The basket and baseline was updated in 1982. To determine the fluctuation of price from one current period to a previous one (for example this year to last year), the basket as it is priced this year and for last year are calculated against the baseline.
Take for example some recent figures, the basket price index for 2007 was 207.342 and for 2008 was 215.303. These numbers are offsets of the base index of 100. This is a price increase of 3.8%. You can calculate this with two different formulas:
- The new figure divided by the old figure
- The difference divided by the old figure
- 215.303 / 207.342 = 1.038
- (215.303 - 207.342) / 207.342 = 0.038
The Consumer Price Index is reported by the Bureau of Labor Statistics
Read more: