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The Consumer Price Index

The Consumer Price Index. URL: http://stats.bls.gov/cpifaq.htm. The CPI is a measure of the average change over time in the prices paid by consumers for a market basket of consumer goods and services. All urban consumers ( CPI-U ) Represents about 87 percent of the total U.S. Population

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The Consumer Price Index

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  1. The Consumer Price Index URL: http://stats.bls.gov/cpifaq.htm

  2. The CPI is a measure of the average change over time in the prices paid by consumers for a market basket of consumer goods and services All urban consumers (CPI-U) Represents about 87 percent of the total U.S. Population Based on the expenditures of almost all residents of urban or metropolitan areas What Is the CPI? Prof. Leighton

  3. How Do I Interpret an Index? • An index is a tool that simplifies the measurement of movements in a numerical series • Many of the CPI indexes have a 1982-84 reference base Prof. Leighton

  4. How Do I Interpret an Index? • BLS sets the average index level (representing the average price level)--for the 36-month period covering the years 1982, 1983, and 1984--equal to 100 • The bureau measures changes in relation to that figure Prof. Leighton

  5. How Do I Interpret an Index? • The CPI in any year = 100 + (or -) the percentage change in prices from the base year • From the base year to any other year, the percent change is ((CPIyear of interest - CPIbase year)/CPIbase year)*100 • As of 2005, the CPI index is 195.3 • There has been an 95.3% increase in prices since 1982-84 ((195.3-100)/100)*100=95.3 Prof. Leighton

  6. Percent Change Between Any Two Years • The formula for a percent change is ((CPIyear 2 - CPIyear1)/CPIyear1)*100 • The percent increase in prices between 2004 and 2005 is((195.3 – 188.9)/188.9) * 100 = 3.5% Prof. Leighton

  7. Calculating Real Wages • Real wage for a given year (in 1982-84 dollars) • = (nominal wage for yr/CPI for that yr)*100 • Average manufacturing wage in 2002 was $15.30 and CPI=179.9 • real wage = ($15.30/179.9)*100 = $8.50 Prof. Leighton

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