Consumer Price Index
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,
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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