1. What is the Federal Consumer Price Index?

The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them.

2. How Does the Calculator Work?

The calculator uses the CPI formula:

Where:

• \( \text{Price}_{\text{current}} \) — Current price of the item (dollars $)
• \( \text{Price}_{\text{base}} \) — Base period price of the item (dollars $)
• \( \text{Weight} \) — Weight of the item in the basket (unitless)

Explanation: The formula calculates the price relative for each item and multiplies it by the item's weight in the basket, then sums these values across all items.

3. Importance of CPI Calculation

Details: CPI is one of the most frequently used statistics for identifying periods of inflation or deflation. It's used as an economic indicator, a deflator of other economic series, and a means of adjusting dollar values.

4. Using the Calculator

Tips: Enter current price in dollars, base price in dollars, and the weight factor. All values must be valid positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between CPI and inflation rate?
A: CPI measures the average change in prices over time, while the inflation rate is the percentage change in the CPI over a specific period.

Q2: How often is the CPI calculated?
A: The Bureau of Labor Statistics calculates CPI monthly for the U.S. population.

Q3: What items are included in the CPI basket?
A: The basket includes food, housing, apparel, transportation, medical care, recreation, education, and other goods and services.

Q4: Why are weights important in CPI calculation?
A: Weights reflect the relative importance of each item in the average consumer's spending pattern.

Q5: What is the base period for CPI?
A: The base period is a reference point that is periodically updated. Currently, the reference base is 1982-1984=100.