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Price Index Measurements

Each month the Bureau of Labor Statistics (BLS) reports the Consumer Price Index (CPI) which is also referred to as the rate of inflation. The reason this is done by the BLS is primarily to determine the change in the cost of living. Following are descriptions of some of the terms used in discussions on inflation:

  1. Consumer Price Index – (CPI) is defined as the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. The word urban in the widely accepted definition can be misleading as the measurement applies to over 90 percent of the population. Over 90,000 prices are collected and assigned to different categories such as food and beverage, housing and apparel. Thus, we hear statements such as ‘housing prices are up 3 percent’. The CPI is the average of all the prices collected and the time period being measured is a year. So, when we hear that the CPI for August was 8.3 percent it means that the average of all prices in August of this year was 8.3 percent higher than the average prices in August of the previous year.
  2. Core Consumer Price Index – refers to the CPI average price change excluding food and energy. The reason for this measurement is that food and energy prices tend to be more volatile than other prices.
  3. Producer Price Index – (PPI) is defined as the measurement of the average change over time in selling prices received by domestic producers of goods and services. Similar to the CPI this is a measure of the change in prices compared to the same month – previous year.

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