Consumer price index

Consumer price index, CPI is the index measuring an average change of the price for goods (44%) and services (56%) of consumer basket of goods. It is major tool for estimation cost of life and one of major indicators of inflation level in the country. Besides, the index is used for price adjustment in other economic indicators of the state such as GDP. One more function of CPI – regulation of social benefits level.

To compute this index, 80 000 prices of consumer goods are taken in the following categories of goods:

Food products

Housing

Apparel

Transportation

Medical care

Recreation

Energy

Other goods and services

CPI is published for the previous month by the Department of Labor, Bureau of Labor Statistics at 08:30 a.m EST (New York) or 4:30 p.m (MSK). Publication date: middle of the month (every second or third week of the month, following to publication of PPI (Producer Price Index). It is very often when CPI and PPI are analyzed together. If both figures grow, it can lead to growth of the interest rate, which in its turn will attract investors and, as the result, growth of national currency – dollar – will take place.

Apart from traditional CPI, there is a “clean” consumer price index - Core CPI. The difference is that Core CPI does not account for change of price in such categories and foods products and energies. It is explained by a sharp change of price that usually happen in these categories and leads to a strong distorting of the index. “Clear” index specifically serves the ground for making a decision about interest rates.

It is noteworthy that at present CPI slightly correlates with real inflation level in the country. Whats is the reason? Firstly, CPI only accounts for import goods, therefore, cheap Chinese import products and technological innovations save prices on the low level over the last few years. Secondly, recession suppressed growth of economy that led to decline of demand (consumption) and saved enterprises from rise in prices. Besides, high level of unemployment enabled to cut expenditure.

Nowadays there is a concert that FRS monetary policy can provoke inflation. Besides, global consumption of goods is growing, which sooner or later will affect inflation paces. Current level of “clear” CPI does not exceed 2% limit (standard inflation of FRS – not lower than 1% and not high than 2%)