Consumer Price Index is a measurement of changes in the prices of goods and services bought by most people in the United States. The index, also called the CPI, compares the present cost of more than 200 types of goods and services with their cost at an earlier time.
The CPI is the chief measurement of inflation (rising prices) in the United States. Employers use the CPI to determine wage and benefits increases, and the government uses it to calculate Social Security benefits. As a result, the CPI affects the income of nearly half the people of the United States. The Federal Reserve System, the agency that oversees U.S. banking, also considers the CPI as it raises and lowers interest rates.
The CPI is prepared by the Bureau of Labor Statistics (BLS), a government agency. The bureau gathers data on costs of such things as food, clothing, housing, medical care, transportation, computers, dining out, and entertainment from thousands of sources in dozens of cities.
There are two main forms of the CPI. The form most widely used reflects monthly and yearly spending by urban wage earners and clerical workers. The other shows spending by all consumers except those in rural areas, the military, and institutions. The BLS also publishes indexes for areas with large populations, regions of the United States, and groups of cities classified by size.
In the 1990’s, the BLS changed how it calculated the CPI in response to charges that the index exaggerated inflation. New methods take into account quality improvements, which often make up for a product’s higher price. The bureau also began to consider how people substitute some goods and services for others as prices vary. If the cost of parking increases, for example, more people might use public transportation.
See also Cost of living; Inflation.
