The news is filled with the term "CPI" during times of high inflation. CPI stands for the Consumer Price Index, which is used to determine the inflation rate. How is it calculated? This guide will help you understand the types of goods that are part of the CPI calculation.
Instructions
1. Know that the Consumer Price Index (CPI) is defined as the changes in prices for a predetermined group of products that the average U.S. consumer uses on a daily basis. The CPI is calculated on a monthly basis by the U.S Government. There are four different components of the Consumer Price Index: housing, electricity, food and transportation.
2. Calculate the average price for housing at the end of the month. Compare this value with the value of the previous month, and it can help you determine if the housing industry is having a significant effect in pushing the CPI up or down.
3. Compute the average cost of electricity for the average U.S. consumer for the month. Compare this computation with the total from the previous month to see if there is an increase or decrease in the electricity component of the CPI.
4. Calculate the average cost of food for the average U.S. consumer for the month. Once again, compare this average cost with the cost of food in the previous month. By comparing these two totals, you can see how much of an influence the price of food has on the CPI.
5. Compute the average cost of transportation for the average U.S. consumer for the month. Compare this average with the average from the previous month. These are the basic components that determine the CPI.
