What exactly is the consumer price index?
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When people want to talk about something like the “cost of living”, it can be really confusing because it’s not clear what kind of “living” we’re talking about.
Does it include housing? If so, where?
What kind of food does it include?
How about transportation?
The CPI attempts to answer all these questions by creating a detailed and concrete list of specific amounts of specific goods and services. Then it’s just a matter of checking the prices of those goods and services and adding them up.
It turns out there are actually several CPIs that are focused on different demographics and areas. For example https://www.bls.gov/opub/ted/2012/ted_20120302.htm is the breakdown for “the elderly”.
It lets you have measures of the cost of living that tries to be as consistent and objective as possible.
It’s a way to estimate inflation for the average consumer. It’s far from perfect but it generally gives you a decent idea. There are equivalent statistics like the PPI, Producer Price Index, that are geared toward businesses.
Essentially, it takes goods and services that you would expect the average person to regularly consume and does a weighted average of the increase/decrease of the price. It’s weighted since you would expect things like food to take up a larger portion of a household’s spending than maybe fuel or public transit. Increase is inflation, decrease is deflation. The CPI is highly unlikely to reflect the impact of inflation for your specific lifestyle because it’s an average across 300 million people (in the US at least) of all income levels and states of life. You would expect a retiree to spend much more on healthcare than someone in their 20’s for example.
In the US the BLS is responsible for gathering and reporting the data. They’re very transparent about how they gather the data and calculate the CPI, down to the weights. I strongly recommend you take a look at their website for the most accurate information. They have great FAQs and such there: https://www.bls.gov/cpi/
Reddit more often than not has a lot of people who have no idea what they’re talking about poking holes in the CPI, saying it’s not a valid calculation. As I said before, it’s not a perfect calculation because it’s averaging a large population and it never was meant to be the perfect indicator of inflation, only to give you a general idea. But there’s a lot of misinformation that is easily disproved by looking at the BLS website (like saying it doesn’t include housing/rent… it does) since they’re extremely transparent about what goes into the CPI calculation. Or that they keep changing the methodology to hide inflation. They keep changing the methodology because people don’t buy whale oil for lighting anymore like they did in the early 1900’s. Or people today need to pay for internet, something most didn’t do 30 years ago. The BLS is very transparent about these changes and why they do them.
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