Essay on Factors Affecting The Consumer Price Index

1050 Words Nov 24th, 2016 5 Pages
Used as indices which delineate price changes, the consumer price index, CPI, and producer price index, PPI, both elucidate price changes given a fixed set of goods and services. Specifically, the former calculates price changes from the lense of a consumer taking into account factors such as taxes. While the latter, conversely analyzes change from the viewpoint of domestic producers. Overall, the two are alike due to the fact that they use price changes to signal price disparity although they represent different aspects of the economy. According to the United States Department of Labor’s Bureau of Labor Statistics (BLS), the consumer price index is “measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.” Thus, one can immediately see that the CPI fails to account for rural or suburban inhabitants. The index is calculated, as per the aforementioned BLS, by aggregating a list of items available for sale in the United States and their corresponding prices. These prices are collected throughout the month. This data is collected by those hired by the Bureau of Labor Statistics as data collectors. Thereafter, using the location from which the data was colelcted, the Census of the Population, the BLS will create a representative market basket of goods and services and monitor price changes using a geometric mean. The CPI only includes goods and services which are bought for consumption by the urban U.S.…

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