13.  C. P. I.
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13. C. P. I.

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13.  C. P. I. 13. C. P. I. Presentation Transcript

  • The Consumer Price Index (CPI)
  • What is it? a general picture of price increases over time.
  • How is it determined? by measuring the prices of only consumer goods and services - in a “basket” of price quotations. ...2
  • samples a variety of urban and rural centres across the country.
  • divided into 8 categories - each assigned a weight to indicate spending influence. Shelter - 27.9% Transportation (including repair costs) - 18.3% Food - 18% Recreation and education (including tuition) - 10.4% Household operations and furnishings - 10% Clothing and footwear - 6.6% Alcoholic beverages and tobacco products - 4.5% Health and personal care - 4.3%
  • Function and Uses: C.O.L.A. (cost of living allowance) and “indexing” measurement of inflation levels Statistics series deflator - to obtain “constant dollar estimates” of income and expenses. (That is what a historical $ value would be equal to today).
  • What is inflation? Two important factors i. rising prices (of course) but this results in ii. declining spending power of money. Therefore sticking $100,000 in the bank for 20 years is not really a good retirement plan.
  • Types of Inflation 1. Demand Pull -increased aggregate demand causes the overall price of goods to rise. We have all ready seen this many times on the basic demand graph.
  • 2. Cost push - decreased aggregate supply due to increased costs of production. Again we have all ready had the pleasure of seeing this many times on the basic supply graph.
  • Limitations/Drawbacks: Does not reflect every household everywhere in Canada Quality improvements of goods not measured - i.e. may be more expensive but much better. fixed weights may not apply to all consumers. no allowance for substitution in response to price changes. therefore is not always work as a cost of living index.
  • Accommodations/Adjust ments: The CPI will often be quoted simply as itself and as the CPI excluding certain volatile or dominant items such as energy. - this allows analysts to better understand the cause of inflation.