The Consumer Price Index (CPI)

The Consumer Price Index (CPI) is an estimated of the overall prices of goods and services. It considers the prices of the items mostly used by the typical consumer.

The degree of the importance of various items to consumers determines the composition and weight of the CPI items. Some of the main items considered in calculating the CPI include housing, food and beverages, clothing, transportation, medical care, education, communication and recreation (Mankiw, 2006).

The analysis of the items in the market basket considers factors such as the size and composition of the sampled items, the weight of a good or service, accuracy of the expenditure estimation and adjustments for the changes in the quality of particular items.

Therefore, an item such as gasoline will have more weight than tomatoes because the ordinary consumer spends more on fuel than tomatoes. Furthermore, the items whose prices are easy to record and project are the most appropriate to include in the market basket.

The Bureau of Labor Statistics (BLS) is the main source of the data on the CPI and PPI for the United States. BLS releases this data on a monthly basis. The organization also provides detailed reports about each index. These reports include the changes for individual items.

The BLS CPI report shows that the unadjusted year-to-year CPI rate was 2.2 percent in April 2017. This CPI rate is the lowest so far this year and less than the market estimate. It exceeded the previously seasonally adjusted index by 0.3 points.

A decline in the CPI rate translates into reduced inflation. The decline has resulted due to the slowdown in the prices of major items such as transport, medical care and energy cost.

This moderate inflation shows that the American economic position is good.

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