The CPI is perhaps the best way we have to gauge the amount

of inflation in the economy. Inflation directly or indirectly affects nearly

every financial decision, from consumer choices to lending rates,
from asset allocation to stock prices.

By accurately measuring the amount of inflation, people, business, and the

government are better able to make future financial decisions. For more
information about the Bureau of Labor Statistics inflation measures, visit

 Causes of Inflation
 Primary Causes

 Increase in Public Spending

 Deficit Financing of Government Spending

 Increased Velocity of Circulation

 Population Growth

 Hoarding

 Genuine Shortage

 Exports

 Trade Unions

 Tax Reduction

 The imposition of Indirect Taxes

 Price-rise in the International Markets

The Consumer Price Index expresses the change in the current prices of the market
basket in terms of the prices during the same period in the previous year. The CPI is
usually computed monthly or quarterly. It is based on the expenditure pattern of
almost all urban residents and includes people of all ages
?
The CPI measures costs in these areas, according to the BLS:
 Food and Beverages (breakfast cereal, milk, coffee, chicken, wine, full
service meals, snacks)
 Housing (rent of primary residence, owners' equivalent rent, fuel oil,
bedroom furniture)
 Clothes (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, toys, 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 the major groups listed above are various government-
charged user fees, such as water and sewerage charges, auto registration fees, and
vehicle tolls. Also, the CPI includes sales and excise taxes associated with
purchases.
However, the CPI excludes taxes—such as income and Social Security taxes—
which are not directly associated with the purchase of consumer goods and
services.
There's one more item off the list. The CPI does not include investment vehicles,
such as stocks, bonds, real estate, and life insurance.

The middle-class squeeze refers to negative trends in the standard of living and

other conditions of the middle class of the population. Increases in wages fail to keep
up with inflation for middle-income earners, leading to a relative decline in real
wages, while at the same time, the phenomenon fails to have a similar effect on the
top wage earners. People belonging to the middle class find that inflation
in consumer goods and the housing market prevent them from maintaining a
middle-class lifestyle, undermining aspirations of upward mobility. In the United
States, middle-class income is declining while many goods and services are
increasing in price, such as education, housing, child care, and healthcare. [1]

Impact on poor and middle class people:

The major consequence of food inflation is the erosion of real income of the people resulting
from the general

increase in prices. The burden of income loss differs across different income groups.
Undoubtedly the household

groups who are employed in the formal sector and whose salaries/wages are fixed in nominal
terms and are re-

fixed periodically are the worst sufferers. The same is true for those employees in the
informal sector who have

income fixed in nominal terms. In Bangladesh, a major concern, however, is the inflation-
induced loss of real

income of the poor. Rise in inflation need to be compensated by the increase in wage. The
Bangladesh Bank

analysis shows that the daily agricultural wage rate in real terms over the period from January
2005 to September

2007 has not declined, rather it has shown a slightly increasing trend. This shows that
agricultural labourers, who

constitute the largest poor group in the country, usually turn out successful in maintaining the
level of their daily

real wage at a certain level.

Table 4.1 reports the estimated yearly average CPI food inflation for day labourers and fixed

income households in rural and urban areas for the period 2008-2011. It is observed that

different rural households faced low food inflation in 2008-09 and 2009-10 due to a sharp

decline of rice prices from the level of 2007-08, while the average food inflation rates

remained almost the same ranging between 14 and 16 percent in other years. The inflationary

trends are largely consistent with rice price trends as shown in Section 3.2. Interestingly, it

appears that while poorer households were in most advantageous position during the lowest

level of inflation (2008-09 and 2009-10), they became more vulnerable with gradual

spiralling of inflation. Overall food inflation in rural areas was found to be lower than urban

areas, as opposed to the recent findings of the BBS. Although the share of rice in food basket
does not differ significantly between rural and urban areas, the difference arises due to higher

share of medium quality rice in food basket of urban people