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There is measurement of price level every month conducted by Bureau of Labor Statistics by calculating CPI (consumer price index) which is average measurement of price which is paid by consumers in urban for goods along with services of consumers in fixed basket. Just relate CPI into real life as what you have learned so far. It will also tell us about money values of your budget.

CPI Numbers reading

CPI is also known as base period reference which is taken equal to 100 for period. Currently we have to assume reference base period 1982-1984 which is taken as average of 36 months with effective from January 82 to Dec 84 where CPI equal to 100.

 In the year 2010 month June,CPI was taken as 218 which is the number that states us the average price which is paid by consumers in urban sector for  goods along with services of consumers  basket in  fixed market were taken at 118 percent more than in 2010 which was in average in 82-84.

CPI construction

It has 3 stages

  • Chose CPI basket
  • Conducted price survey monthly
  • Calculation of CPI

Chose CPI basket

 This is the starting stage where we have to choose toCPI basket. It is the basket that containsgoods along with serviceswhich represents in index form. They are also weighted according to their importance. The items which are in basket are of important which are especially created for items in household. Taken as example people will spend money in large quantity house hold things and control their spending in bus fares.

 In today’s scenario CPI basket depends onsurvey ofconsumer expenditure in 2008. In fig 5.6 you will come across with CPI basket of June in the year 2010. All the important items of the CPI basket are applied to average of household items.

Conducted price survey monthly

 The employees of Bureau of Labor Statistics have checked prices of goods along with services of 8000 in Consumer Price Index basket in all around more than 25 metropolitan areas. It is done because the main aim of CPI is to measure the price changes per month which is same items. Here they have taken example where they have calculated the rate of the box which contains jelly beans. If the prices of box increases jelly bean prices have increased? Here BLS records the details about the prices of box or packaging which is different from changes in other things. By obtaining raw data, other work is to calculate CPI.

Calculation of CPI

  • To find out the cost in base period of CPI basket
  • To find out the current period price of CPI basket
  • To find out current along with base period price of CPI basket.