Notesale: Turn your study into money

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HOW CONSUMER PRICE INDEX MEASURES INFLATION
The CPI is the most closely watched indicator of inflation around the world
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Calculations made from that basket are used to make
decisions that will have an impact on consumer spending
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But how is this basket selected and used to calculate the CPI? The department in charge of
the index, the Bureau of Labor Statistics, looks at several categories, each given a different
importance to compute the month's percent change
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Bureau of Labor Statistics gives each category its relative importance based on a survey of
what consumers buy
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To make sure products they
are price tracking haven't changed, they compare the product to a list of data points from the
month before
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The BLS is basing those calculations off of
an urban consumer paying out of pocket
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This is just an average calculation as inflation affects
different people differently
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And the index doesn't include everything
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One of the
reasons why this index is preferred is that the CPI only transitions items in and out of the
basket every two years, while the PCE changes its basket month to month based on consumer
trends
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Looking at multiple indexes gives a broad picture of inflation
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When inflation remains high for too long, consumers begin to
change their behavior in ways that can keep prices elevated
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The CPI is a useful tool for economists and consumers alike
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