Brief Explanation Of The CPI - Consumer Price Index In A Snap
A brief explanation of the CPI will inform you about the Consumer Price Index and its relation to inflation. In a year, prices of goods and services can change more than once because of several factors. These changes affect the ability of the people to acquire them.
Author:Emmanuella SheaReviewer:Camilo WoodNov 07, 202213.7K Shares344.3K Views
A brief explanation of the CPIwill normally involve the fundamental aspects pertaining to the Consumer Price Index.
These basic facets of the CPI include terms, such as consumers, price and price change, goods and services, and expenditure or spending patterns.
Reading about a brief explanation of the CPI will enlighten people who are not familiar with how economists and analysts use specific financial data to gauge the changes in the prices of goods and services.
Here's how the CPI report gets compiled each month—and why it's so important
CPI Meaning
For a brief explanation of the CPI, a simple but concise definition of what the Consumer Price Index is all aboutshould be in order.
Here is one from a reputable international financial institution headquartered in Washington:
“„Consumer Price Indexes (CPIs) are index numbers that measure changes in the prices of goods and services purchased or otherwise acquired by households.- International Monetary Fund (IMF)
In its definition of CPI, the IMF added that these households - in other words, the consumers - buy these goods and services for their needs and wants.
These goods and services include the prices of the top three physical needs of consumers: food, shelter, clothing.
Others are the prices of those they tend to use in their daily lives more commonly, such as gasoline, transportation, and medicines.
To observe and analyze easily the spending patterns of consumers, the U.S. Bureau of Labor Statistics placed them under two categories, namely:
- urban consumers
- urban wage earners and clerical workers
CPIs, according to the IMF, are used to index the following:
- interest payments
- pensions
- prices of bonds
- rents
- social security benefits
- other forms of payments
When introducing a new monetary policy, governments or the central banks of some countries would use CPIs to do so.
The CPI is also used to measure consumer inflation.
There goes a brief explanation of the CPI made through the discussion of its meaning.
CPI Report
In the U.S., another brief explanation of the CPI can be found in a report prepared by the country’s Bureau of Labor Statistics (BLS). Its latest Consumer Price Index reportavailable online is for September 2022.
To come up with a CPI report, the BLS would gather information monthly. Data would be taken from 75 urban areas in the U.S., with the data taken from approximately 6,000 housing units.
An estimated 22,000 retail establishments are also involved in the data collection of the BLS, such as the following:
- department stores
- hospitals
- filling stations
- supermarkets
In the three biggest areas in the U.S., the BLS would collect data each month. In the smaller ones, data collection takes place every other month.
To get the date needed, BLS personnel or representatives would:
- make phones calls
- research the Web and take in data accessible online
- visit people and places
Regarding the September 2022 CPI report of the BLS, these two increased during the said month: food index and medical care index (both at 0.8 percent).
Those that declined included the energy index (2.1 percent) and index for used cars and trucks (1.1 percent).
CPI Today
The table below provides additional pieces of information in relation to a brief explanation of the CPI.
It shows the rate of inflation in the last five years (at the time of this writing), which included pre-COVID-19 pandemicyears.
| Year | Annual Percent Change (rate of inflation) |
| 2018 | 2.4 percent |
| 2019 | 1.8 percent |
| 2020 | 1.2 percent |
| 2021 | 4.7 percent |
| 2022 | 8.6 percent |
People Also Ask
What Is The Main Goal Of CPI?
The CPI aims to measure the changes that gradually happen in the retail prices of goods and services, according to India’s Ministry of Statistics and Program Implementation (MoSPI). These changes are analyzed to determine its impact on people’s purchasing power.
How Do You Explain CPI To Customers?
Here is a tip from the Office of the National Statistics of the U.K.: tell the customers to think of a big grocery basket. Found inside that basket are goods and services.
Over time, the individual price of each of these goods and services changes. As it changes, it follows that the basket’s total cost will change, too. The price change is measured by the CPI.
How Is CPI Used To Measure Inflation?
According to the Reserve bank of Australia, the CPI is a popular inflation indicator. As the CPI measures the “percentage change” in the prices of goods and services, inflation is measured through the “rate of change” of these prices.
Final Thoughts
While a brief explanation of the CPI may not be sufficient for some to fully grasp this economic terminology, it still gives some basic concepts about the Consumer Price Index.
The needs and wants of people come at a price - literally. Their prices change over a given period. Such changes influence the spending patterns of the people.
A brief explanation of the CPItells that people’s purchasing power can either increase or diminish in each period.
Emmanuella Shea
Author
Emmanuella Shea is a distinguished finance and economics expert with over a decade of experience. She holds a Master's degree in Finance and Economics from Harvard University, specializing in financial analysis, investment management, and economic forecasting.
Her authoritative insights and trustworthy advice have made her a highly sought-after advisor in the business world.
Outside of her professional life, she enjoys exploring diverse cuisines, reading non-fiction literature, and embarking on invigorating hikes.
Her passion for insightful analysis and reliable guidance is matched by her dedication to continuous learning and personal growth.
Camilo Wood
Reviewer
Camilo Wood has over two decades of experience as a writer and journalist, specializing in finance and economics. With a degree in Economics and a background in financial research and analysis, Camilo brings a wealth of knowledge and expertise to his writing.
Throughout his career, Camilo has contributed to numerous publications, covering a wide range of topics such as global economic trends, investment strategies, and market analysis. His articles are recognized for their insightful analysis and clear explanations, making complex financial concepts accessible to readers.
Camilo's experience includes working in roles related to financial reporting, analysis, and commentary, allowing him to provide readers with accurate and trustworthy information. His dedication to journalistic integrity and commitment to delivering high-quality content make him a trusted voice in the fields of finance and journalism.
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