Consumer Price Index
The Consumer Price Index (CPI) provides a standardized method for comparing the average level of prices faced by the consumers and households of a nation over time. Price-level information is vital to a wide range of personal, government, and business decision makers. The CPI focuses solely on the prices faced by consumers and does not attempt to reflect prices faced by all buying entities in a country. Nevertheless, it is the most commonly used price-level indicator in a nation. It is the basis for the calculation of a country's inflation rate.
COMPUTATION
The Bureau of Labor Statistics (BLS) publishes CPI data monthly. BLS workers collect price data on a set market basket of goods and services in selected cities across the country each month. The market basket includes hundreds of goods and services typically purchased by consumers. The price data is then weighted to represent the mix of goods and services typically purchased by consumers. The mix of goods and services and the weights are based on the Consumer Expenditure Survey, a national survey of the spending habits of 29,000 families (BLS, "How BLS Measures"). The decennial census of the population is used for selection of the urban areas included in the monthly surveys.
The CPI is computed by dividing the weighted price of the market basket in a time period by the weighted price of the market basket in a designated base time period. The resulting ratio times 100 yields an index with a value of 100 for the base time period. CPI values above or below 100 indicate that the price level is higher or lower than it was during the base period. For example, an index value of 140 indicates that the average price level is 40 percent higher than it was in the base year.
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