Consumer Price Index at a Glimpse

A consumer Price Index (CPI) is a index number measuring the cipher toll of consumer goods and services purchased by households. It is one of several toll indices calculated by national statistical agencies. The percent change in the CPI is a measure of inflation. The CPI can be used to index wages, salaries, pensions, or regulated or contracted prices. The CPI is, along with the population counting and the National Income and Product Accounts, one of the most closely watched national economic statistics.

Two basic types of accumulation are needed to construct the CPI: toll accumulation and coefficient data. The toll accumulations are collected for a distribution of goods and services from a distribution of sales outlets in a distribution of locations for a distribution of times. The coefficient accumulations are estimates of the shares of the different types of expenditure as fractions of the total expenditure covered by the index. These weights are usually based upon expenditure accumulation obtained for sampled periods from a distribution of households. Although whatever of the sampling is done using a sampling frame and probabilistic sampling methods, much is done in a commonsense way (purposive sampling) that does not permit calculation of certainty intervals. Therefore, the sampling variance is normally ignored, since a single estimate is required in most of the purposes for which the index is used. Stocks greatly affect this cause.

The index is usually computed monthly, or quarterly in whatever countries, as a weighted cipher of sub-indices for different components of consumer expenditure, such as food, housing, clothing, each of which is in turn a weighted cipher of sub-sub-indices. At the most detailed level, the elementary aggregate level, detailed coefficient information is unavailable, so elementary aggregate indices are computed using an unweighted arithmetic or geometric mean of the prices of the sampled creation offers. These indices study prices each month with prices in the price-reference month. The weights used to combine them into the higher-level aggregates, and then into the overall index, relate to the estimated expenditures during a foregoing whole year of the consumers covered by the index on the products within its orbit in the Atlantic covered. Thus the index is a fixed-weight index, but rarely a Laspeyres index, since the weight-reference period of a year and the price-reference period, usually a more recent single month, do not coincide. It takes time to assemble and process the information used for coefficient which, in addition to home expenditure surveys, haw include trade and tax data.

Ideally, the weights would relate to the composition of expenditure during the time between the price-reference month and the current month. There is a large technical economics literature on index formulae which would approximate this and which can be shown to approximate what economic theorists call a true cost of experience index. Such an index would show how consumer expenditure would have to advise to compensate for toll changes so as to allow consumers to maintain a constant standard of living. Approximations can only be computed retrospectively, whereas the index has to appear monthly and, preferably, quite soon. Nevertheless, in whatever countries, notably in North America and Sweden, the philosophy of the index is that it is inspired by and approximates the idea of a true cost of experience index, whereas in most of Europe it is regarded more pragmatically.

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