Cpi – The Consumer Price Index

Charles Conlin + Casey Gillespie

CPI – THE CONSUMER PRICE INDEX

What is CPI?  The consumer price index or CPI is a

measure of the average price of consumer goods and services purchased by households within a nation  The purpose is to represent what the typical urban consumer is paying for a standard group of goods  CPI is used to measure inflation and can be used to index wages, salaries, pensions or other prices

 The CPI index is usually

computed yearly which can be formed into a graph showing the percent change in the value of a dollar that year

Calculating Long-term Inflation  An index base year is often used into

order to scale long-term CPI charts to find increases or decreases in inflation over periods of time  For example, between 1971 and 1977, the united States CPI increased 47% from its base year

Why does the government want lower inflation?  Inflation spreads fear and panic and is

overall unhealthy to a consumer economy  Government payments adjusted for CPI such as bonds and social security are paid out at much lower rates than they should be, thus saving the government money whenever inflation increases.  With lower inflation the dollar seems to be stronger and matches up better against foreign countries than its actual worth.  The GDP of the country is overstated

How does the government lower its CPI reports?  CPI used to be measured by comparing

the price of one item one year to the price of it the next. This was arithmetic math but during the Clinton administration they changed it so that the basket of goods observed was geometrically weighted. This automatically lowered the CPI reported. The government have also been known to take goods that are inflating out of the equation altogether. It is estimated that CPI is understated by about 3% because of geometric weighting. The bureau of labor statistics estimates that with other

How does this affect you?  The government is understating your

costs of living and therefore is giving you much lower social security than it should be.  Government bonds and debts are paying out lower interest rates then they should be and are effectively cheating you of your money.