What does the consumer price index consist of?

I am researching the CPI and am curious what it measures, what the measurements consist of or exclude and whether the average citizen should be concerned with the resulting figure. Also, where do I find accurate information that can be trusted for a current CPI?

1. What is the CPI?
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.
2, What goods and services does the CPI cover?

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. Major groups and examples of categories in each are as follows:

* FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, service meals and 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, 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 other personal services, funeral expenses).

Also included within these major groups are various government-charged user fees, such as water and sewerage charges, auto registration fees, and vehicle tolls. In addition, the CPI includes taxes (such as sales and excise taxes) that are directly associated with the prices of specific goods and services. However, the CPI excludes taxes (such as income and Social Security taxes) not directly associated with the purchase of consumer goods and services.

The CPI does not include investment items, such as stocks, bonds, real estate, and life insurance. (These items relate to savings and not to day-to-day consumption expenses.)

For each of the more than 200 item categories, using scientific statistical procedures, the Bureau has chosen samples of several hundred specific items within selected business establishments frequented by consumers to represent the thousands of varieties available in the marketplace. For example, in a given supermarket, the Bureau may choose a plastic bag of golden delicious apples, U.S. extra fancy grade, weighing 4.4 pounds to represent the Apples category.

3, How is the CPI market basket determined?

The CPI market basket is developed from detailed expenditure information provided by families and individuals on what they actually bought. For the current CPI, this information was collected from the Consumer Expenditure Survey over the two years 2001 and 2002. In each of those years, about 10,000 families from around the country provided information on their spending habits in a series of quarterly interviews. To collect information on frequently purchased items such as food and personal care products, another 7,500 families in each of the 2 years kept diaries listing everything they bought during a 2-week period.

Altogether, more than 30,000 individuals and families provided expenditure information for use in determining the importance, or weight, of the more than 200 categories in the CPI index structure.

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The U.S. Consumer Price Index is a time series measure of the price level of consumer goods and services. The Bureau of Labor Statistics, which started the statistic in 1919, publishes the CPI on a monthly basis. The CPI is calculated by observing price changes among a wide array of products in urban areas and weighing these price changes by the share of income consumers spend purchasing them. The resulting statistic, measured as of the end of the month for which it is published, serves as one of the most popular measures of United States inflation; however, the CPI focuses on approximating a cost-of-living index not a general price index.

The CPI can be used to track changes in prices of all goods and services purchased for consumption by urban households, i.e., of the consumer basket. User fees (such as water and sewer service) and sales and excise taxes paid by the consumer are also included. Income taxes and investment items (like stocks, bonds, life insurance, and homes) are not included. The index measures inflation faced by consumers who live in urban areas designated by the U.S. Bureau of the Census.

See site for more info.
price data and services.
A weakness of the current method for estimating the CPI is that it inadequately adjusts for improvements in the quality of a product. The price of a car may increase, but this may be solely due to the increase in engine size, making AC standard instead of optional, improved safety features, or reduced pollution. Though the Bureau of Labor Statistics tries to adjust for these quality improvements, the consensus of most experts is that the CPI still overstates the rate of inflation. For example, a rate of growth of the CPI of 2% is probably the same as zero inflation when quality improvements are taken into account.

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