Finance for Dummies – CPI

Finance for Dummies is a series about personal finance topics for those without a PhD in Finance!

Finance for Dummies CPI

Consumer Price Index – CPI

What is the CPI?

The Consumer Price Index is a measure of the average change in the price of a basket of consumer goods and services. 1982-1984 is used as the base and equals 100.  There are different versions of the CPI, for instance CPI-U includes food and energy.

What is included in the CPI?

  • FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks)
  • HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture)
  • APPAREL (men's shirts and sweaters, women's dresses, jewelry)
  • TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance)
  • MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services)
  • RECREATION (televisions, toys, pets and pet products, sports equipment, admissions);
  • EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories);
  • OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and other personal services, funeral expenses).

How is CPI information collected?

Each month, data collectors from the Bureau of Labor Statistics (BLS), call or visit thousands of retail stores, doctor's offices, colleges, and apartments, collecting price information for over 80,000 items for consumers living in urban areas.

How is the CPI used?

  • As an economic indicator.  The CPI measures price inflation for consumers and is used by Congress, the President, and the Federal Reserve to develop fiscal policy.
  • To adjust other economic measurements. For instance the CPI is used to calculate Social Security Cost-of-Living increases.
  • To adjust the value of the dollar.  The CPI is used to adjust Federal Income Tax structure to prevent bracket creep.

Where can I find more information?

The Bureau of Labor Statistics has current CPI statistics for many U.S. metropolitan areas.

 

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