Consumer Price Index

The CPI is your basket of goods. It looks at the most commonly bought household items, and the price change for each item to figure out change in Inflation

Indexing

Indexing is the practice of adjusting fiscal policy based off a specific index

CPI Issues

1. Categories are weighted. Weight will not remain accurate over the years
2. Changes in basket of goods. Smartphones were not sold as often as they are now 2 years ago
3. Cultural diversity. Certain groups do not buy white bread or pork
4. Annually changes. How much of the change in inflation is due to the new weightings of the basket of goods and not actual price increases?

CPI Computing

• Base year always has CPI of 100
• The CPI is an index number CPI for the year after the base year = $\frac{CP{I}_2}{CP{I}_1}$