What is the Consumer Price Index?

The Consumer Price Index is one of the best main economic indicators through which the amount of changes in the general level of prices and the inflation rate in a particular country is statistically inferred, as the consumer price index tracks the prices of a basket that includes several diverse categories of goods and goods sold in retail, in addition to services that reflect the structure of consumer spending for individuals, which varies from one country to another.

The composition included in the basket includes several different sections and categories that include food, housing, transportation, health services, education and basic services such as water, electricity and other basic expenses for individuals, the amount in which the price of the basket changes over a period of time is known as the inflation rate, which is a catalyst for the National Central Bank in the process of adjusting its monetary policy.

what is the consumer price index
The history of the emergence of the consumer price index dates back to the period of World War I, where the significant rise in prices at the time led to the need to create this index in order to calculate the variables of the cost of living, since that time, the index has become based on the average readings issued for the period between 1982 to 1984, which was considered as a baseline with 100 points. For example, the CPI figure of 175 indicates that the inflation rate is 75% higher, A reading of “100” indicates that there has been no inflation since then. Like other inflation indicators, the CPI is a lagging measure, reflecting variables in an earlier period of time.

How to calculate the consumer price index?

The CPI is calculated by finding the ratio between the current market basket prices and the base year, and then multiplied by 100 to express the amount of change in percentage terms. 

The increase in the value of the index indicates the amount of inflation or the amount of decline in the purchasing power of the dollar over time, in addition to the decline in the purchasing power of consumers, high inflation is very worrying, due to the decrease in the value of savings in the future, in contrast, a decrease in the consumer price index is a good thing, as prices fall. and the purchasing power of the dollar increases, which is known as deflation. However, this deflation could indicate an impending recession in the country. 

The results of the statistics are often expressed in the CPI report, issued by the competent authority, as a percentage change compared to the previous report. Typically, the CPI is calculated monthly or quarterly.

What are the types of CPI?

The consumer price index is divided into two main types, according to the data measured, where the consumer price index for the labor force (CPI-W) is concerned with jobs and clerical work. In contrast, the All-Consumer Price Index (CPI-U) includes everyone, covering all jobs and self-employment.

It is worth noting that analysts pay great attention to the Basic Consumer Price Index (Core CPI), which is an index derived from the consumer price index without including food and energy prices, as the most accurate measure is an expression of inflation, after excluding the main categories of consumer goods necessary for living and difficult to dispense with. However, the chain-weighted CPI gives a more comprehensive picture of consumption in the country.

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