What Is the Consumer Price Index?

A price index is an index that measures changes in the overall price level in the market. An increase in the overall price level means that inflation has occurred. Conversely, a decrease in the overall price level means deflation. The price index is an indicator used to measure inflation or deflation in the economy. If the price index rises too much, it indicates that inflation has become a factor affecting social and economic instability, and the central bank will promulgate monetary tightening and related fiscal policies, which will have a certain impact on social and economic development. Therefore, the rise of this index will often affect the economy. A price index is a macroeconomic indicator that can represent an economy.

For example, if the price index rises by 25% in half a year, it means that the cost is increasing and the value of money is depreciating. 100 years ago

Consumer price index (English: consumer price index , abbreviated as CPI ; also known as consumer price index ), in economics, is an indicator of price changes that reflects the prices of products and services related to the life of residents. The percentage change is ways of expression. It is one of the main indicators of inflation. Generally defined as more than 3% inflation, more than 5% is more serious inflation. CPI is often an important reference indicator for market economic activities and government monetary policy. CPI stability, full employment and GDP growth are often the most important socio-economic goals. If the consumer price index increases too much, it indicates that inflation has become a factor of economic instability, and the country will have the risk of tightening monetary and fiscal policies, resulting in uncertain economic prospects. Therefore, the excessive increase of the index is often not welcomed by the market. The available means are raising interest rates, tightening money, adopting a sound fiscal policy, increasing production, and stabilizing prices.

Calculation

The consumer price index measures changes over time, including the average change in retail prices of multiple (often several hundred) goods and services. This variety of goods and services is divided into several main categories. When calculating the consumer price index, each category has a weight that shows its importance. These weights are determined by surveying thousands of households and individuals about the products and services they purchase. The weights are often revised to match them with reality. CPI is a fixed quantity and price index and cannot reflect the improvement or decline of the quality of the product. It does not consider new products. If the CPI deducts volatile food and energy statistics, this data is called the "core price change rate". When the core price change rate is less than 3%, the economic growth rate should be at a relatively low level.

The composition of CPI in mainland China includes food, tobacco, alcohol and supplies, clothing, household equipment, health care, transportation, communications, entertainment, education and culture, and the prices of eight categories of products. The CPI has the highest weight among the eight categories of products ^[2]

Production price index

The production price index ( P roducer P rice Index, PPI for short) is an index used to measure the average change in the ex-factory price of a manufacturer. It is one of several price indexes collected and sorted out by the statistical department. If the production price index is higher than expected, it indicates the risk of inflation. If the production price index is lower than expected, it indicates the risk of deflation. ^[3]

Average price index

Overview

The average price index ( GDP deflator , also translated as GDP deflator , GDP average price index , or implicit price deflator for GDP ) is the ratio of nominal GDP to real GDP, which expresses the proportional relationship between money supply and money demand.

Features

1. The GDP deflator measures the prices of all goods and services.

2. The GDP deflator only includes domestic products, and imports are not part of the GDP.

3. The GDP deflator gives weight to product prices. ^[4]