Inflation is one of the concepts in economics that often gathers attention and concern from the society. Inflation is defined as the overall increase in price levels which in turn, affects the buying power of the public. This happens when the prices of commodity increases, the value and buying power of money decreases as an effect. As such, inflation is also equated to the decline in the value of money (“CPI: Frequently Asked Questions”). The rate of inflation is a value that determines how fast the price levels can increase.
As such, the rate of inflation is the change in percentage of price levels within a given period. The rate of inflation can be measured through the use of various economic indexes which include consumer price index (CPI), gross domestic product (GDP) deflator, and producer price index (PPI). Among the various economic indexes, consumer price index is the most widely used index in reporting the current inflation rate of United States (“CPI: Frequently Asked Questions”). To know the inflation rate of the United States, one must know how the CPI is obtained.
Consumer price index is the average change in prices paid by urban consumers for certain goods and services in a certain period. The Bureau of Labor Statistics is the branch of the United States government that is responsible for all the reports about consumer price index. Reports include price information changes and the calculation of the CPI itself. CPI depends on the goods and services commonly purchased by consumers. This group of goods and services is known as the market basket. The goods and services included in the market basket are determined by surveys about consumer expenditures and consumer purchasing patterns.
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Some of the major expenditure categories in the market basket are food and beverages, housing, apparel, transportation, medical care, recreation, education and communication, other goods and services (“CPI: Frequently Asked Questions”). The Bureau of Labor Statistics (BLS) reports consumer price index in two population groups. The population groups include all urban consumers (CPI-U) and urban wage plus clerical workers (CPI-W). Among the population groups, CPI-U is the broadest. The CPI-U is based on all the urban residents of United States.
The residents include professionals, self-employed, poor, unemployed and retired people. CPI-U does not include residents of rural non-metropolitan areas, farm families, armed forces and institutions such as prisons and mental hospitals. The CPI-U accounts for all the urban areas that are about 82 percent of the total population in the United States. Because of its broad population, CPI-U is the CPI that is released to the public and is the one commonly reported by the media (“Consumer Price Index”).
In the Bureau of Labor Statistics consumer price index summary, the month and year that is summarized is for April of 2009 (“Consumer Price Index Summary”). During April 2009, various indexes that are related to consumer price index are also given such as food and energy index. This is to help consumers determine price level changes in different aspects of the market basket. The CPI summary also reports the goods and services that have the greatest effect to the current CPI and to the inflation rate. The value of the indexes reported in the CPI summary is both the seasonally adjusted and unadjusted values.
Seasonally adjusted means that the CPI is adjusted because of some factors that affect the price levels like changing weather, production cycles, changeovers of models and holidays. On the other hand, unadjusted CPI is the raw value without all the adjusting factors (“Consumer Price Index”). The CPI-U for the current period is 213. 240 before seasonal adjustments. After the seasonal adjustments are made, the resulting CPI-U is 212. 671. The rate of inflation for the month before seasonal adjustments is -0. 7. The value stated is based on year over year change in the consumer price index.
The year over year change is from April 2008 up to April of 2009. The -0. 7 percent inflation rate means that there is a decrease in price level changes from the previous year. Changes in the indexes of major goods and services included in the market basket affect the decrease in the inflation rate. The rate of inflation in April of 2009 increased by 0. 2 percent (raw CPI-U), as compared from the previous month. After the seasonal adjustments, the CPI- U value was unchanged compared to the -0. 1 percent reported from the previous month (“Consumer Price Index Summary”).
The two goods and services that have the greatest price increase in April of 2009 are ‘food and beverages’ and ‘education and communication’. The food and beverages index has a 3. 3 percent increase before seasonal adjustments. This means that the price levels of food and beverages has increased by 3. 3 percent from the previous year of the same month. After seasonal adjustments, the value of the index is changed to -2. 4 percent based on the changes from the preceding month. On the other hand, the education and communication index has a 3. 4 percent increase from the previous year.
This means that the price levels for education and communication has increased by 3. 3 percent from previous year of the same month. After seasonal adjustments, the value of the index is changed to 0. 3 percent based on the changes from the preceding month (“Consumer Price Index Summary”). The two goods and services that have the lowest price increase are energy and transportation. The energy index posted a value of -25. 9 percent change. This means that the energy price levels have decreased by 25. 9 percent from the previous year of the same month.
This value of the energy index is the primary cause of the decline in the year over year value of CPI and inflation rate. After seasonal adjustments, the value of the index is -2. 4 percent based from the preceding month. On the other hand, transportation index posted a value of -13. 4 in the consumer price index summary. The value means that a decrease of 13. 4 percent in the price level of transportation has been observed since April of 2008 up to the present. After seasonal adjustments, the value of the index is changed to -0. 4 percent based on the difference from the preceding month (“Consumer Price Index Summary”).
The current US inflation rate is computed by the percentage change from the base year CPI-U up to the present. According to the Bureau of Labor Statistics, the current US inflation rate is -0. 7. This value is based on the year over year changes in the CPI-U. The value means that a 0. 7 percent decrease is observed between April of last year up to April of 2009. Another value posted by the BLS is the current inflation rate of US based on the difference between the current month and the previous month. The current unadjusted inflation rate is 0. 2 which is based from March up to April of 2009.
The inflation rate based on the year 1982-1984 is 113. 240 percent. This is obtained by simply getting the difference between the current CPI-U and the CPI-U in 1982-1984 which is 100, which is then multiplied to 100 percent (“Consumer Price Index Summary”). The current U. S. inflation rate has changed dramatically as time passes by. A $1 bill in 1982 will have twice as much as its amount today. This means that the value of money has also changed dramatically because of the increasing price levels. This is because the changes in price levels in turn cause a decrease in monetary values.
Inflation rate will continue to become a subject of concern for the general public. As such, questions and doubts will still be casted as long as inflation rates continue to increase. It is of great concern on how the United States government can create ways to prevent the continuous increase of inflation rate in the country. As such, the U. S Federal Reserve may resort onto increasing the interest rate in order to match the inflation rate. However, if it comes to a point that the inflation rate has become so high that the value of money has been greatly diminished, the U.
S Federal Reserve might look on cyclical patterns from the historical data of inflation rates in order to come up with feasible decisions that can alleviate the problem in the future.
“Consumer Price Index. ” Bureau of Labor Statistics. 22 August 2008. 04 June 2009 <http://www. bls. gov/cpi/cpifaq. htm>. “Consumer Price Index Summary. ” Bureau of Labor Statistics. 15 May 2009. 04 June 2009 <http://www. bls. gov/news. release/cpi. toc. htm>. “CPI: Frequently Asked Questions. ” Seattle. gov. N. d. 04 June 2009 <http://www. seattle. gov/financedepartment/cpi/overview. htm>.
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