The Consumer Price Index - Essay Example

Consumers usually notice changes in the prices of goods and services including food, gasoline, and clothing (Strawser and Ryan, 2010). These commodities do register a significant price swing generated from seasonal supply and demand. However, this essay aims at analyzing these effects from the purchases made frequently from many items with relatively stable prices.

In most cases, the CPI is often applied in adjusting the income, retirement benefits, lease payments, and school lunch benefits. Other included items in this category include alimony and the tax brackets. Notably, the mode of CPI application in the United States affects nearly all Americans since it is based on buying habits of average consumers (Strawser and Ryan, 2010). However, it may not be a perfect reaction of an individual price experience. Nonetheless, the CPI is a fundamentally feasible economical method for statistical provision in its appropriate applications.

Numerous or nearly all the nation CPI results usually differ from an individual’s price expenditure, a vital factor to be considered in this statistical application is how a person spends his/her money/income. The consumer expenditure survey estimates revealed that each consumer service or good produces CPI expenditure weights that are equally significant relative to all other market bracket goods and services (Strawser and Ryan, 2012). For instance, a five percent increase in house rent is usually vital than the same increase in the telephone charges since consumers usually spend more on housing compared to telephone services. Equally, increased spending on recreation and medical care and a sharp increment in the prices of goods and services will automatically increase personal expenditure and price index. The same effect will increase the consumer average significantly.

The CPI usually divides the consumer bracket market into groups of goods and services and each of the brackets can be estimated approximately using an expenditure pattern. This can only be done using an expenditure pattern that can be used us1ed to compare different but significant data sets. From the data sets below, the approximate weights for all the Urban Consumers (CPI-U) are as per the columns data set. It should be noted that some data sets show a sharp difference from the CPI average (Schuldes, 2011). This is an indication of different changes in price measures in the total market bracket. For instance, the expenditure pattern with high medical care expenditure appears may be tabulated for the month of October 2001 (Strawser and Ryan, 2010).

Relative Importance

Table 1: individual expenditure

Increment in the prices of food and beverages by five percent and medical care costs by ten percent with no changes in the prices of other commodities will still change the overall CPI within the price index by nearly 1.4 percent.

Table 2: National CPI-U Average

Notably, the same changes can affect CPI on yearly basis and the same effect can be analyzed from the statistical data presented in the table below.

Table 3: different databases dealing with CPI by major expenditure categories on a yearly basis

Graph 1: expenditure per year on the reflection on annual inflation

Graph 2: annual inflation trend.

Graphs 1 & 2 above are obtained from table 3 above. There indicate that an increase in the average level of price increase leads to Inflation that increases the CPI thereby affecting the spending habit of consumers within the united states as in other countries (Schuldes, 2011). Nonetheless, an average deflation decreases the level of items or goods and services (Strawser and Ryan, 2012).