Consumer price index

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In economics, a consumer price index is a statistical time-series measure of a weighted average of prices of a specified set of goods and services purchased by consumers. It is a price index that tracks the prices of a specified basket of consumer goods and services, providing a measure of inflation. The CPI is a fixed quantity price index and considered a cost-of-living index.

The CPI can be used to track changes in prices of goods and services purchased for consumption by households, i.e., of the consumer basket. User fees (such as water and sewer service) and sales and excise taxes paid by the consumer are also included. Income taxes and investment items (such as stocks, bonds, life insurance, and homes) are not included.

1 Core CPI
2 CPIs around the world
3 See also
4 References
5 External links

[edit] Core CPI

The CPI measure of core inflation systematically excludes food and energy prices because they are highly volatile. More specifically, food and energy prices are frequently subject to large changes that fail to persist, for example due to supply disruptions such as drought or OPEC-led cutbacks in production.

[edit] CPIs around the world

[edit] United States

Main article: U.S. Consumer Price Index

Image:Consumer Price Index US 1913-2004.png

In the USA, CPI figures are prepared monthly by the Bureau of Labor Statistics of the United States Department of Labor.

The CPI-U includes expenditures by all urban consumers. The CPI-W includes expenditures by consumer units with clerical workers, sales workers, craft workers, operative, service workers, or laborers. Recently, the Chained Consumer Price Index C-CPI-U, a chained index, was introduced. The C-CPI-U tries to mitigate the substitution bias that is encountered in CPI-W and CPI-U by employing a Tornqvist formula and utilizing expenditure data in adjacent time periods in order to reflect the effect of any substitution that consumers make across item categories in response to changes in relative prices. The new measure, called a "superlative" index, is designed to be a closer approximation to a "cost-of- living" index than the other measures. The use of expenditure data for both a base period and the current period in order to average price change across item categories distinguishes the C-CPI-U from the existing CPI measures, which use only a single expenditure base period to compute the price change over time. In 1999, the BLS introduced a geometric mean estimator for averaging prices within most of the index’s item categories in order to approximate the effect of consumers’ responses to changes in relative prices within these item categories. The geometric mean estimator is used in the C-CPI-U in the same item categories in which it is now used in the CPI-U and CPI-W.

[edit] Sources of data

Prices for the goods and services used to calculate the CPI are collected in 87 urban areas throughout the country and from approximately 23,000 retail and service establishments. Data on rents are collected from about 50,000 landlords and tenants.

The weight for an item is derived from reported expenditures on that item as estimated by the Consumer Expenditure Survey. Prices are taken throughout the month.

The BLS numbers are available through:

Monthly news release. Consumer Price Index. Electronic access available.
Historical data in Handbook of Labor Statistics. Electronic access available.
Diskettes
"LABSTAT" database.

[edit] Major research in progress

Continuing research on technical improvements in the calculation of the CPI.
Continuing work on the next major weight revision of the CPI.

In 1996, the Boskin Commission found the CPI to be a biased measure, and gave a quantitative analysis of the bias. The Boskin critique helped to spur some changes in the U.S. CPI although it was partially disputed by the BLS. Many of the changes were aimed at moving the CPI to a cost of living model which takes consumer substitutions into account and typically reduces the reported level of inflation.

[edit] Canada

Statistics Canada publishes the CPI figures and the data used in the calculation.<REF>"Latest Release from the Consumer Price Index", Statistics Canada</REF>

[edit] Eurozone

The European Central Bank publishes the Monetary Union Index of Consumer Prices (MUICP). It is a weighted average of price indices of member states. The method is a HICP or "Harmonized Index of Consumer Prices", where goods are split by final consumption; it is a seasonally adjusted chained index.

[edit] United Kingdom

The traditional measure of inflation in the UK for many years was the Retail Price Index which was first calculated in the early 20th Century to evaluate the extent to which workers were affected by price changes during the first world war. When the Blair government first set an explicit inflation target, it chose the RPIX, which is the RPI calculated excluding mortgage interest payments. This was felt to be a better measure of the effectiveness of macroeconomic policy. It was argued that if interest rates are used to curb inflation, then including mortgage payments in the inflation measure would be misleading.

The Retail Price Index (RPI) is published monthly by the Office for National Statistics. Since 1996 the United Kingdom has also tracked a Consumer Price Index figure as well.

[edit] Belgium

Main article: Consumer price index (Belgium)

In Belgium, wages, pensions, house rent, insurance premiums, unemployment benefits, health insurance payments, etc. are by law tied to a consumer price index.

[edit] Sweden

The index is calculated and published by Statistics Sweden<ref>"Consumer Price Index (CPI)", Statistics Sweden</ref>

[edit] Switzerland

Switzerland issues a monthly CPI calculation by the Swiss Federal Statistical Office. <ref>Economic and Financial Data for Switzerland, Swiss Federal Statistical Office</ref>

[edit] Australia

The CPI is calculated and posted quarterly by the Australian Bureau of Statistics .<ref>"Consumer Price Index, Australia", Australian Bureau of Statistics</ref> Historical figures are available at the Reserve Bank of Australia website.<ref>"Consumer Price Index", Reserve Bank of Australia</ref>

[edit] Israel

The Israeli CPI (Hebrew: מדד המחירים לצרכן Madad HaMechirim Latsarchan) is calculated and published by the Central Bureau of Statistics.<ref>Central Bureau of Statistics</ref>