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Charles Conlin + Casey Gillespie

CPI – THE CONSUMER PRICE


INDEX
What is CPI?

 The consumer price index or CPI is a


measure of the average price of
consumer goods and services
purchased by households within a
nation
 The purpose is to represent what the
typical urban consumer is paying for a
standard group of goods
 CPI is used to measure inflation and
can be used to index wages, salaries,
pensions or other prices
 The CPI index is usually
computed yearly which can
be formed into a graph
showing the percent change
in the value of a dollar that
year
Calculating Long-term Inflation

 An index base year is often used into


order to scale long-term CPI charts to
find increases or decreases in inflation
over periods of time
 For example, between 1971 and
1977, the united States CPI increased
47% from its base year
Why does the government want
lower inflation?
 Inflation spreads fear and panic and is
overall unhealthy to a consumer
economy
 Government payments adjusted for CPI
such as bonds and social security are
paid out at much lower rates than they
should be, thus saving the government
money whenever inflation increases.
 With lower inflation the dollar seems to
be stronger and matches up better
against foreign countries than its actual
worth.
 The GDP of the country is overstated
How does the government lower its
CPI reports?
 CPI used to be measured by comparing
the price of one item one year to the
price of it the next. This was arithmetic
math but during the Clinton
administration they changed it so that
the basket of goods observed was
geometrically weighted. This
automatically lowered the CPI reported.
The government have also been known
to take goods that are inflating out of the
equation altogether. It is estimated that
CPI is understated by about 3% because
of geometric weighting. The bureau of
labor statistics estimates that with other
How does this affect you?

 The government is understating your


costs of living and therefore is giving
you much lower social security than it
should be.
 Government bonds and debts are
paying out lower interest rates then
they should be and are effectively
cheating you of your money.