What changes/affects the results provided by the Consumer Price Index?

Similar questions: affects results provided Consumer Price Index.

See details for description of the sources and uses of the U.S. CPI. Edit Calculating the CPIThe calculation of the CPI involves uses a hybrid methodology consisting of two stages:In the first stage, elementary indices are created to show the price levels of very similar goods in the same area. For instance, there is an elementary index for "sports equipment in Seattle".3 As of June 2007, there are 8,018 of these elementary indices.(8,018 = 211 * 38, where 211 is the number of categories ("item strata") and 38 is the number of geographical areas considered.)4 All but a few of the elementary indices are based on geometric means formulas.

In the second stage, the elementary indices are combined to create a number of aggregate indices, including the CPI.(The CPI is an aggregate of all 8,018 basic indices. BLS also computes other aggregates computed uses smaller subsets of the basic indices. For instance, there is an all-items index for Boston, and an all-areas index for electricity.

)Weights of the CPIThe weight (or quantities, to use the above terminology) of an item in the CPI is derived from the expenditure on that item as estimated by the Consumer Expenditure Survey. This survey provides data on the average expenditure on selected items, such as white bread, gasoline and so on, that were purchased by the index population during the survey period.In a fixed-weight index such as the CPI, the implicit quantity of any item used in calculating the index remains the same from month to month. A related concept is the relative importance of an item.

The relative importance shows the share of total expenditure that would occur if quantities consumed were unaffected by changes in relative prices and actually remained constant. Although the implicit quantity weights remain fixed, the relative importance changes over time, reflecting average price changes. Items registering a greater than average price increase (or smaller decrease) become relatively more important.

Edit Method evaluationThis two-stage method is relatively new. Before 1999, CPI used only Laspeyres indices, measures of the price changes in a fixed market basket of consumption goods and services of constant quantity and quality bought on average by urban consumers, either for all urban consumers (CPI-U) or for urban wage earners and clerical workers (CPI-W). The Laspeyres index, however, systematically overstates inflation because it does not take into account changes in the quantities consumed that may occur as a response to price changes.

The Laspeyres formula works under the assumption that consumers always buy the same amount of each good in the market basket, no matter what the price. The geometric mean price index formula used to calculate many of the elementary indices, in contrast, assumes that consumers will always spend the same amount of money on a good and shift the quantity they buy of that good based on the price. Edit Uses of the CPIAs an economic indicator.

As the most widely used measure of inflation, the CPI is an indicator of the effectiveness of government fiscal and monetary policy. Especially for inflation targeting monetary policy by the Federal Reserve; however, the Federal Reserve System has recently begun favoring the Personal consumption expenditures price index (PCE) over the CPI as a measure of inflation. Business executives, labor leaders, and other private citizens also use the CPI as a guide in making economic decisions.

As a deflator of other economic series. The CPI and its components are used to adjust other economic series for price change and to translate these series into inflation-free dollars. As a means for indexation (i.e.

Adjusting income payments). Over 2 million workers are covered by collective bargaining agreements which tie wages to the CPI. In the United States, the index affects the income of almost 80 million people as a result of statutory action: 47.8 million Social Security beneficiaries, about 4.1 million military and Federal Civil Service retirees and survivors, and about 22.4 million food stamp recipients.

Changes in the CPI also affect the cost of lunches for the 26.7 million children who eat lunch at school. Some private firms and individuals use the CPI to keep rents, royalties, alimony payments and child support payments in line with changing prices. Since 1985, the CPI has been used to adjust the Federal income tax structure to prevent inflation-induced increases in taxes.

Sources: http://en.wikipedia.org/wiki/United_States_Consumer_Price_Index#Calculating_the_CPI .

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Please explain the Consumer Price Index and its relevance in layman's terms.

Canada is thinking/planning to have online voting provided for voters. Does USA have a system like that yet?

About financial reform. What's wrong with the idea of having a Consumer Protection Agency that looks after U.S.?

Is there an advantage to doing your financial planning at a bank like harris or is it better to go with edward jones or.

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