What is the CPI?
Curtis has earned the Life and Health Insurance licensure, has passed the Series 66 examination, and has earned a degree from the University of Nevada, Reno. He has over 20 years of experience in the financial industry, helping others protect, grow and manage their wealth. Curtis helps clients create customized strategies for their portfolios based on their unique financial goals.
WHAT IS THE CPI?
One of the most important and hottest topics of the economy lately has been the topic of inflation. It is something we see occurring on a daily or weekly basis, whether it is at the gas pump or in the grocery store. We all know that inflation makes things more expensive on the end level to consumers, but one of the things that is important to understand is how inflation is measured. The most common and well-known measurement of inflation is the CPI or Consumer Price Index. This is seen in the media, how they factor increases to SSI and some pensions, and it is the main measure of inflation that we are exposed to.
So, what is CPI? According to the U.S. Bureau of Labor Statistics CPI is “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available.” A keyword to focus on in the above definition is “urban” as CPI does not take into affect rural areas, farm families, and members of the Armed Forces. This is one of the drawbacks of CPI, as it does not take everyone into account.
There are different measurements of inflation that exist out there other than the CPI. It is important to understand what they measure as the CPI is essentially a measurement to help households understand the overall cost of living from month to month minus the drawbacks noted above. There is also the Core Inflation Index, which is the preferred measurement that drives governmental policy changes around monetary policy etc. There is the WPI (Wholesale Price Index) which measures and tracks the changes in prices of goods in stages prior to reaching us on the retail or end level. The PPI is the Producer Price Index which measures the average change in selling prices received by domestic producers of intermediate goods and services over time. This is unique, as the PPI measures from the seller’s perspective, not the buyer or end user’s perspective as the CPI uses.
The CPI rose 7.5% from January 2021 to January 2022 and inflation as of the writing of this post just hit 8.5% for March of 2022. Inflation is going to be a hot topic for a while and since we have seen inflation hit harder than it has in the past 40 years. It is important to take the time to understand what we can about inflation. I know that it feels like the true measurement of inflation is feeling the pain of filling up your gas tank or taking the weekly trip to the grocery store. Learning how we measure inflation and what is and isn’t included in that measurement is an important first step into understanding what we are seeing and what we aren’t seeing with the numbers of inflation being reported to us.
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