What is Consumption Price Index?
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The Consumer Price Index (CPI) is an indicator that measures the price changes of a basket of goods and services purchased by households during a certain period of time. CPI is often used to measure the level and impact of inflation. The calculation method of CPI includes selecting a certain quantity and type of representative goods and services, and then calculating the index based on the price changes of these goods and services. The changes in CPI reflect the price changes of goods and services, thereby affecting the purchasing power and cost of living for households.
Definition
The Consumer Price Index (CPI) is an indicator that measures the change in prices of a basket of consumer goods and services purchased by households over a certain period. CPI is commonly used to gauge the level and impact of inflation.
Origin
The concept of the Consumer Price Index originated in the early 20th century, with the United States beginning systematic compilation in 1919. As economies developed, CPI became an essential tool globally for measuring inflation.
Categories and Features
CPI can be divided into headline CPI and core CPI. Headline CPI includes all consumer goods and services, while core CPI excludes food and energy prices, which are more volatile. Headline CPI better reflects overall price level changes, whereas core CPI is more suitable for analyzing long-term inflation trends.
Case Studies
During the 2008 global financial crisis, the U.S. CPI significantly dropped, reflecting the impact of economic recession on consumer demand. Conversely, in the late stages of the COVID-19 pandemic in 2020, the U.S. CPI rose sharply due to supply chain disruptions and increased demand, indicating heightened inflationary pressures.
Common Issues
Investors often misunderstand short-term CPI fluctuations, assuming they directly reflect economic health. In reality, short-term changes in CPI may be influenced by seasonal factors or temporary events, thus requiring analysis in conjunction with other economic indicators.
