CPI is fundamentally a price index that follows prices of a basket of consumer goods and services. These indices can cpi là chỉ số gì
be structured by geographic area and item categories.

They’re most widely known for their role in calculating inflation, and for adjusting the cost of benefits like Social Security and SNAP. But the CPI also does much more.
What is the CPI?

The Consumer Price Index, or CPI, is a measure of changes in prices paid by consumers for a market basket of consumer goods and services purchased on an ongoing basis. The percent change in the price of that market basket over time is a direct reflection of inflation and can be used to determine the purchasing power of money, to understand trends in the economy and to evaluate government policies.

To calculate the CPI, data is collected from retailers and wholesalers nationwide for a set of items that represent what is bought by typical urban households. The basket includes things like food, clothing, utilities and rent. The weights for each item are determined by their percentage share of household expenditures on that particular type of good or service. The data is collected and reported monthly by the Bureau of Labor Statistics (BLS). The average price for each of these items is multiplied by the number of units purchased to get an overall measure of the cost of the market basket. The BLS then divides the market basket into several different categories, most importantly the “All Items” and the “Food and Energy” baskets. These baskets are further broken down into the “All Items Less Food and Energy” and the “Current Energy-Flat-Rate Renters’ Index,” or CERI, a subset of the All Items index that is widely used to track underlying inflation.

The BLS then normalizes each of these time series to an index base period. The current standard base is 1982-84, though some indexes are published with an alternate base, most often 1967. Each of these indexes has a full description, including its item category, geographic area, population and seasonality, along with a series ID code. The BLS’s help and tutorial page has more information on how to identify and use these indexes.

Using this information, the BLS then reports the index’s percent change on a month-over-month basis and annually. The BLS also breaks the data down by specific items and groups of items for analytical purposes, such as by commodities and services or by durables and nondurables.
What is the CPI’s purpose?

As the most widely cited measure of inflation, the CPI is a vital economic indicator. It helps us understand the true value of our money, which erodes over time as prices increase. The CPI is important to understand because it influences countless aspects of our lives, from food and energy prices to how much we pay for rent.

The Bureau of Labor Statistics (BLS) calculates the CPI using data from a wide variety of sources. For example, it collects price data from about 8,000 housing units and 23,000 retailers, service providers and online outlets across the country; BLS also gathers information on rents from 50,000 landlords and tenants. Prices are collected over the course of a month and then compiled into the “market basket,” which is a collection of items that represents the range of goods and services purchased by consumers. These items are then weighted by their share of total consumption expenditures, with the result being an overall index number for the market basket as a whole.

Expenditure patterns can vary significantly from month to month, and this variation is what gives rise to seasonal effects in the CPI. To overcome this, the CPI uses a statistical process called season adjustment to identify and eliminate these variations. The CPI publishes both seasonally adjusted and not seasonally adjusted data; the latter is useful for studying longer term trends.

While the CPI is a valuable tool for understanding the economic phenomenon of inflation, it does have some shortcomings. For instance, it does not take into account changes in quality of goods and services, which is a major cause of inflation. For example, a newer Volvo Station Wagon costs more than a 1973 model because it has safety features that were not available in the earlier car. NerdWallet writers are subject matter experts who carefully research and fact-check their work. They use primary, trustworthy sources that include peer-reviewed studies, government websites and academic research. They are also committed to unbiased reporting and fairness. NerdWallet content is reviewed by editors for accuracy, timeliness and relevance.
What is the CPI’s methodology?

A price index measures change through time in the prices of a sample basket of goods and services. Ideally, the basket should contain a representative assortment of goods and services used by all households. In practice, however, the variety of goods and services consumed by consumers is enormous. In addition, some goods and services disappear from the market or are replaced by new ones. Therefore, in reality, a price index must be updated periodically to reflect new items and changes in the quality of existing products.

To meet this challenge, the CPI divides its 75 pricing areas (PSUs) into small geographic areas called segments. Each segment is based on one or more census block groups, counties, average rent (or rent level) and tracts. To ensure the CPI collects prices for each of these categories, the Bureau of Labor Statistics assigns a distinct identification number to each segment. This identifier is used in the item-by-item selection procedure to select the proper outlet for each price collection visit.

Each month, the CPI surveys approximately 53,000 prices for a large variety of goods and services. The collected prices are then compared to the corresponding prices for the previous month. The price-change data are adjusted to account for seasonal influences and other factors that affect consumer spending habits. The CPI also includes an econometric model that estimates the effect of changes in incomes on expenditures, and on the use of various types of consumption services, such as hairdressing or taxi fares.

The resulting index is then published, and it is widely used in government policy, business decision making and private finance. For example, the CPI is used to adjust pensions and insurance premiums, and to increase or decrease the amount of tax payments. It is also used as a deflator for other economic series, such as earnings or dollar value of commodities and services, to convert them into inflation-free dollars.

The accuracy of the CPI depends largely on the quality of the data collected and processed. Processing errors can result from inaccurate or incomplete questionnaire responses, as well as from mistakes in computer-assisted data collection. To minimize these errors, the Bureau of Labor Statistics uses a combination of automated data checks and human screening. In addition, the CPI’s coding and questioning instrument is designed to detect and alert staff to incorrect answers.
What is the CPI’s impact?

The CPI is a key economic indicator that helps the Federal Reserve determine whether to increase interest rates or lower them. In addition, it affects the purchasing power of your money, so knowing its trends can impact how much you want to spend and save. It also impacts the government’s economic policy, which can influence everything from Social Security benefit increments to how much your employer can put into your tax-advantaged retirement accounts on a yearly basis.

In the simplest sense, the Consumer Price Index measures how prices change over time for a market basket of goods and services purchased by urban consumers. That market basket consists of a broad array of items, including food and clothing as well as household goods and autos. The items are weighed according to their relative importance in the market, and their prices are collected from a large sample of retail and service establishments in about 75 urban areas. The data is then compiled by the Bureau of Labor Statistics to create the CPI.

While the CPI isn’t the only measure of inflation, it’s often cited by economists and the media. The most familiar version of the CPI is the CPI for Urban Consumers, which is the one used by the Federal Reserve to guide monetary policy. The other commonly discussed version is the chained CPI, which aims to account for how people alter their consumption patterns in response to rising or falling prices.

The CPI doesn’t factor in investments or intangible assets like life insurance, so it doesn’t include the cost of your house or car. It also doesn’t include some personal expenses, such as fines, gambling losses and gifts to family or friends. Inflation can lead to a decrease in the purchasing power of your dollars, but deflation is less likely because it usually means that wages aren’t increasing as fast as prices.

The most important point to remember about the CPI is that it doesn’t tell you exactly how much your dollar can buy, but it does give you an idea of how much you need to spend in order to maintain your current standard of living. It’s also a good way to recognize periods of inflation or deflation, though the Fed uses a different measure of inflation called the Personal Consumption Expenditures Price Index to guide its decisions.