If you hear any kind of in-depth analysis about the economy, you might hear references to the Consumer Price Index (CPI). There may even be some screaming. Jim Cramer, I’m looking at you and your Brioni suits. And while it may seem like just another three letters, the CPI is very important to you and your Paycheck!
Here’s Five Fast Facts About the CPI:
- 📊 What Is It? - The CPI measures the average change in prices over time for what they call a market basket of goods and services. We’re talking about stuff you need.
- 🧺 Market Basket? - It’s a fancy way of saying stuff you buy for day-to-day living, like the price of food, clothes, shelter, fuel, even doctor’s visits and all those ever-so-important things.
- 🏙️ Prices From Where? - From 87 different urban locations across the country and then averaged out. There’s no explanation why rural areas aren’t used, but you can assume it’s because pricing is inconsistent in the boonies.
- 📈 Who Uses It? - Businesses use the CPI to plan their budgets and their expenses. Investors use it to figure out how they’re going to invest their money. So: math.
- 📉 What Does an Increase or Decrease Mean? - If the CPI goes up, that means we get inflation and there's a lowering in the dollar’s value. A decrease in CPI means prices are falling and the dollar’s power is increasing. That means deflation. That may sound good, but it can also be an indicator of a coming recession. Over the past five years, it’s gone from 2.4% to 8% and that indicates bigtime inflation.
🔥Bottom line: The CPI doesn’t mean much to us normal folk, but if you’re ever interested in investing, it’s a good thing to know. That said, if you’re ever interested in taking the country’s financial temperature (or you’re interested in seeing if inflation’s ending), give it a look.
Have you ever used the CPI for guidance?
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