CPI: Fluctuation of Price of Goods and Services in a Country

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The CPI in the United States is defined by the Bureau of Labor Statistics as "a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services." So basically the CPI is an indication of the fluctuation of price of goods and services in the country. Each country has their own CPI index whether it’s the U.S., Canada or UK. Calculating CPI is not very complicated it is simply done by getting the numbers of change in price of the fixed price of goods. Once that is done the numbers are then averaged which then leads to weighing them based on how important the good is. The changes that do occur in these numbers are then related to the changes that occur in cost of living. Such as if the prices of oil goes up it will be reflected in these numbers as fuel is a very important aspect of living cost whether it means for your car or your home. The CPI numbers are updated monthly on the official government site.
There is not just one but there are two categories for measuring CPI. There is one CPI that is specifically for urban wage owners that is represented by CPI-W and then there is another CPI measure for all urban consumers and that is known as C-CPI-U. In the chart below is a breakdown for how the CPI is constructed for urban consumers. Which is widely used you may ask? Well 87% of the population is accounted by the C-CPI-U and that is because it better represents the general public. When it comes to analyzing rates of inflation or deflation CPI is most commonly used as it provides clear data as to what is going on. When the numbers of CPI rise rapidly in a short amount of time that usually indicates towards inflation and when there are big drops in numbers in a short a...

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...o consumers hoping that those consumers will go out and spend their money. As mentioned before CPI does measure most of the important elements that fit into cost of living yet it does miss out some. CPI measures prices for goods and services but its measures do not include housing, bonds and stock which term as assets. It does not include the stocks and bonds and uses a value that is inaccurate for housing each year. This glitch in the system is thought to be the reason why the 2006 housing bubble was missed causing the major problem in that industry.
The CPI is a measure in other words it is not exact but an estimate. It has its ups and downs and can be blamed for missing data or giving inaccurate data. Prices rise and when that happens it creates an income effect along with a substitution effect, and at the end the CPI only accounts for the income effect.

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