What Does CPI Index Mean?
2023-06-05
Summary:
CPI stands for Consumer Price Index, tracks price changes for goods and services purchased by urban consumers. Explore its economic significance.
The consumer price index (CPI) is an important macroeconomic indicator that reflects the changes in the price levels of consumer goods and services related to the lives of residents, as well as an important indicator for macroeconomic analysis and decision-making and national accounts.
Generally speaking, the level of CPI directly affects the introduction and intensity of macroeconomic control measures by the country, such as whether the central bank adjusts interest rates and whether the reserve requirement ratio is adjusted. At the same time, the level of CPI also indirectly affects the changes in capital markets (such as the stock market, futures market, capital market, and financial market).
The purpose of compiling consumer price index index is to understand the basic situation of price changes across the country, analyze and study the impact of price changes on social economy and residents' lives, meet the needs of governments at all levels to formulate policies and plans, carry out macro-control, and provide reference and basis for national accounts, which is the basis for the state to issue price subsidies to residents.
The consumer price index (CPI), combined with the employment situation report (non-agricultural), has become another hot economic indicator that has been carefully studied in the financial market. Because inflation affects everyone, it determines how much consumers spend to buy goods and services, affects the cost of business operations, greatly destroys the investment of individuals or enterprises, and affects the quality of life of retirees. Moreover, the outlook on inflation helps to establish labor contracts and formulate government fiscal policies.
The consumer price index measures changes over time, including the average change in the retail prices of more than 200 kinds of goods and services. These 200+goods and services are divided into 8 main categories. When calculating the consumer price index, each category has a weight that can show its importance. These weights are determined by investigating the products and services purchased by thousands of households and individuals. The weights are revised every two years to align with people's changed preferences.
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