The consumer price index is an economic statistic used to measure the price changes of
one good or a group of goods from one year to the next, or from one month to the next.
The group of items that is being measured normally consists of four hundred goods and
services that a typical family of four would consume, which is referred to as the market
basket. The market basket is subdivided into six categories, each of which is assigned a
different weight of importance towards the countries total CPI. The categories include
food and beverage, accounting for nineteen percent; housing and utilities, 37.7 percent;
clothes and maintenance, 5.2 percent; transportation, 21.8 percent; medical care, six
percent; and other goods and services, 10.3 percent. The CPI can be calculated for a
single product, one of these six subdivisions, or for the economy as a whole. The CPI
serves as a measure of the inflation or deflation that a product or country experiences
from one year to the next.
In order to determine the consumer price index, a base year must be determined.
The base year is the original year in which data was collected, and the year to which one
makes all of the comparisons. The base year is given a value of 100. As the percentage
of this original price changes, you either add or subtract that percent from your base year.
For example, if the CPI increased ten percent from one year to the next, the original
value would equal 100 and the new CPI would equal 110. It could also be said from this
that inflation increased ten percent. Therefore, it is a measure of inflation because what
100 dollars bought during the base year, would cost 110 dollars during this new year.
Information to determine...