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Consumer Price Index - Essay Example

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The consumer price index is used to measure a change in the price of a basket of goods over a period of time. There are a lot of uses of CPI but its major uses…
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Consumer Price Index
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Consumer Price Index

Download file to see previous pages... Controlling inflation has been no doubt one of the most challenging tasks faced by major economies of the world, mostly them being the third world economies. Another way of explaining the concept of inflation is that as it rises, each particular unit or currency will be able to buy comparatively lesser quantity of goods as compared earlier.
People often mix up the consumer price index with inflation and consider both of them to be the same thing. However, to understand it in very simple words, the percentage change in CPI is what gives a figure for inflation in a particular economy.
Measuring inflation is a difficult problem, however it is done by determining the price of a “basket of goods” from time to time. This basket of goods contains those goods which are mostly consumed by households. A price index is determined this way which can be defined as the price of this basket of goods today and then consequently the movement is this price index gives the figure for inflation.
Determining the values for the consumer price index, it can be concluded that during the course of previous 12 months the “all item index” rose by by three percent before any account was made for seasonal adjustments. Similarly the CPI witnessed a 1.5 percent increase in the previous year, 2010.
Since the overall CPI is determined by movements in the price of the “basket of good”, one needs to consider how these individual items effect the overall price index. Energy prices witnessed a 6.6 percent increase in the current year which was a comparatively lower figure to 7.7 percent in the previous year. Similarly, the gasoline witnessed a 9.9 percent increase in the year 2011, compared to about 13.8 percent in the previous year, 2010. The household index on the other hand rose to 1.8%, being up from 0.8 percent in the previous calender year (Ball, ...Download file to see next pagesRead More
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