SIMPLE EXPLANATION OF INFLATION
AND CPI
What is Inflation?
Inflation is an increase in the overall level of
prices. Because rising prices reduce the buying power of
money, inflation can also be defined as a decline in the
value of money.
What is the Rate of Inflation?
The rate of inflation is a measure of how fast prices
are rising. It is computed as the percentage increase in
the level of prices between two time periods.
What is the Consumer Price Index (CPI)?
The consumer price index (CPI) is the most widely
used measure of consumer price inflation. The CPI
measures the average change over time in the prices paid
by urban consumers for goods and services. The Bureau of
Labor Statistics (BLS) of the U.S. Department of Labor
collects the CPI price information and calculates the
CPI statistics.
What are the CPI-U and the CPI-W?
BLS measures the CPI for two population groups:
- All Urban Consumers (CPI-U)
- Urban Wage and Clerical Workers (CPI-W)
The CPI-U measures consumer price inflation for all
U.S. residents of urban areas, which accounts for about
87 percent of the U.S. population. The CPI-W measures
consumer price inflation for a subset of the CPI-U
population: residents of urban areas who live in
households that:
- receive more than half of their income from
clerical or wage occupations, and
- have one earner employed for at least 37 weeks
during the previous 12 months.
The CPI-W covers about 32 percent of the U.S.
population.
The CPI-U is the most commonly used index because it
has the broadest population coverage. However, the CPI-W
is used sometimes to make cost-of-living adjustments for
labor contracts.
How is the CPI index used to measure price
change?
The CPI measures the average change over time in the
prices paid by urban consumers for a representative
selection of consumer goods and services. The selection
of goods and services (commonly referred to as the
"market basket") is based upon actual consumer
purchasing patterns, which are determined from a survey
of consumer expenditures. Goods and services in the
market basket are weighted according to the share they
constitute of total consumer spending. The major
expenditure categories are:
- Food and beverages
- Housing
- Apparel
- Transportation
- Medical care
- Recreation
- Education and communication
- Other goods and services
How often are CPI data published?
U.S. CPI data is published each month; in addition,
annual CPI data is published each year.
See:
Our main COLA information page
and:
What
is the CPI, how is it figured, and why the heck do I
care??
and:
Does the CPI reflect what
Seniors must actually spend?
and:
Explanation of exactly how the
2009 COLA was figured
and
He supports
fair Social Security
Increases to
Reflect Seniors'
Higher Costs of
Living
Parts are extracted from an article on Seattle.gov |
