The Consumer Price Index (CPI): Understanding Inflation and Its Impact on the Economy
The Consumer Price Index (CPI) is an important economic indicator used to measure inflation and price changes in the economy. The future did look bleak last June when the annual inflation rate topped out at 9.1%. This could be indicative of a struggling economy prone to price changes and general price increases.
The CPI is measured by calculating the price changes of a basket of goods and services that are commonly purchased by consumers. The basket includes things like food, transportation, housing, and medical care. The calculation of the CPI is done by comparing the latest prices to the prices from a reference period.
Inflation, as mentioned earlier, is a key factor that the CPI measures. Inflation refers to the overall price increase in the economy over time. Many factors contribute to inflation, such as changes in supply and demand, government policies, and unpredictable natural events.
One major consequence of inflation is a decrease in purchasing power. When prices are continually increasing, people have to spend more money to purchase the same goods and services. This can lead to lower living standards, decreased consumer spending, and reduced economic growth.
To combat inflation, governments and central banks implement policies such as raising interest rates or adjusting monetary policies. These policies can help control the growth of the money