Howe to Read a Consumer Price Index?

The Consumer Price Index (CPI) is used to estimate the amount of goods and services in a certain household. It is one of different price indicators looked at by national statistical agencies. Apart from the CPI, there is the estimate result of inflation. Thus, CPI can be used to calculate the effects of inflation in income, benefits, and the price of goods or commodities used. This is being monitored by specific agencies in the government like the population census and the National Income and Product Accounts. In order to come up with the CPI, there are two basic information needed.

The Price data is the information gathered from the samples of goods being tested in the community. There is a specific place where they allotted for them to monitor the prices of the samples.

The weighting data is based on the approximate shares of purchases and expenses of the total expenses. More often, the data from the sample prices and household is the bases of this.

Since CPI is just an approximated index, there is the possibility for the result to have error since the prices comes only from a few list of prices and not as a whole. That is why any purchases abroad and those of the tourists in the country may not be included.

CPI often includes those basic commodities and services that the consumer needs, like foods and transportation.

CPI is then directly affected by inflation. Every time price increases, consumers tend to lessen the products and goods they are buying especially when the salary or income of the consumers are still the same. Who wants to consume more than the cash you got in hand when your tomorrow is not sure? Level of employment plays an important role in determining how much a certain individual can consume in the service and goods they need.

For the management of the business, it may be possible to check the PPI (Product Price Index) to insure that CPI will not be badly affected.

The higher the CPI means that the goods and the services the consumer wants to avail is within reach and that they have enough income to spend for their everyday need.

Consumer Price Index is widely used in many countries, especially Canada. Although there are still many ways to estimate the price changes, it is considered as one of the most important indicators in the business.