Introduction
Consumer Price Index (CPI) is a measure that examines the average change in prices paid by consumers for goods and services over time. It is a key indicator of inflation and is crucial for assessing the economy’s health.
Calculation
CPI is calculated by taking a basket of goods and services purchased by a typical household and comparing the total cost of that basket in a base period to the total cost in the current period. The change in cost represents the inflation rate.
Importance
CPI is used by policymakers to make decisions on interest rates, wage increases, and social security benefits. It also helps businesses in setting prices and forecasting future trends.
Examples
- If the CPI is 2%, it means prices have increased by 2% compared to the base period.
- A CPI of 0% indicates no inflation, while a negative CPI indicates deflation.
Case Studies
In 2020, the CPI in the United States decreased due to the COVID-19 pandemic, impacting various sectors like travel and hospitality.
Statistics
According to the Bureau of Labor Statistics, the CPI in the U.S. increased by 1.4% in 2021, showing a gradual recovery from the pandemic-induced economic downturn.
