The Consumer Price Index (CPI) tends to measure the monthly change in prices paid by United States consumers. The Bureau of Labor Statistics (BLS) tends to calculate the CPI as a weighted average of prices for a basket of services and goods representative of aggregate U.S. consumer spending. Kavan Choksi Finance Expert underlines that The Consumer Price Index in the United States increased by 3.7% year-on-year to 307.026 points in August 2023, showing an increase from the 3.2% growth recorded in the previous month. Market expectations additionally predicted a smaller 3.6% increase in the CPI to reach 306.976 points.
Kavan Choksi Finance Expert offers an overview of the Consumer Price Index (CPI)
The Consumer Price Index (CPI) is considered to be among the most popular measures of inflation and deflation. The CPI report makes use of price samples, survey methodology, as well as index weights. The Bureau of Labor Statistics (BLS) is known to collect around 80,000 prices monthly from about 23,000 service and retail establishments. Even though the two CPI indexes calculated from the data do contain the term urban, the more widely cited and broad based of the two covers about 93% of the U.S. population.
Shelter category prices that account for around a third of the overall CPI tend to be based on a survey of rental prices for 50,000 housing units. This survey is subsequently used for calculating both the rise in rental prices as well as owners’ equivalents. The owners’ equivalent category models the rent equivalent for owner-occupied housing in order to effectively reflect the housing costs’ share of consumer spending. Excise taxes, as well as user fees and sales are known to be included in it. However, income taxes and the price of investments like bonds, life insurance policies and stocks are not a part of the CPI.
As per Kavan Choksi Finance Expert, the calculation of the CPI indexes from the data factors in substitution effects. This effect implies to the consumers’ tendency to shift spending away from categories and products that have become more expensive. It also adjusts price data based on the changes in product features and quality. The weighing of service and product categories in the CPI indexes largely corresponds to the latest consumer spending patterns derived from a separate survey.
Every month two indexes are published by the BLS. The Consumer Price Index for All Urban Consumers (CPI-U) represents the U.S. population not living in remote rural areas, and does not cover spending by people living in military bases, institutions or farm households. CPI-U forms the basis of the widely reported CPI numbers that matter to financial markets. Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is also published by BLS. It takes into account the 29% of the U.S. population living in households with income derived predominantly from clerical employment or jobs with an hourly wage. CPI-W is ideally used for adjusting social security payments, as well as other types of federal benefits and pensions.