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Consumer Price Index

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Consumer Price Index
EC 601 – Fall 2010

December 3, 2010

Consumer Price Index (CPI) According to Mankiw the Consumer Price Index is a measure of the overall cost of the goods and services bought by a typical consumer. The Department of Labor’s subordinate branch the Bureau of Labor who is in charge of providing the Consumer Price Index of states that the Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a “market basket” of consumer goods and services. Some background into how the Consumer Price Index came about. The Consumer Price Index was initiated during World War I, when rapid increases in prices, particularly in shipbuilding centers, made an index …show more content…

If a consumer buys one product over another because of a price hike in the first product, chain-weighted figures will capture this buying shift, while Core CPI will not (Barnes, n.d.). Core CPI will continue measuring the price of the good as it rises, regardless of whether fewer people are purchasing the product (Barnes, n.d.). The CPI represents all goods and services purchased for consumption by the reference population (U or W) BLS has classified all expenditure items into more than 200 categories, arranged into eight major groups ("Consumer price index," 2010). Major groups and examples of categories in each are as follows: • FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks) • HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture) • APPAREL (men's shirts and sweaters, women's dresses, jewelry) • TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance) • MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services) • RECREATION (televisions, toys, pets and pet products, sports equipment, admissions); • EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories); • OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and

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