Consumer Price Index ( CPI ) is one of the main tools to measure Inflation. Inflation as we know it, is a very vital factor in the fundamental analysis. It defines the decrease in the purchasing power of a currency which may lead to a higher unemployment rate.

The CPI as defined as Bureau of Labor Statistics in the United States of America is “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. “

In order to calculate CPI, there are two basic data types that is needed: price data and weighting data. The price data is acquired by getting a sample of a product on a sales outlet within a sample location on a particular time. The weighting data is an estimate of the shares on the overall expenditure that is within the context of the index.

It has a scheduled released at 8:30 am EST on the 15^th of each month, to keeps track on the average changes in the price of a basket of goods and services. Food, Accommodation, Clothes and Services, Transport, Medical Service, Entertainment, Other goods and services are the main categories that belongs to CPI. All of the changes in the price of mentioned categories together with other items are averaged to form the overall CPI. Since it is released annually, the cost of living may also be assessed through it.

Aside from the CPI, it is also essential to look at the “core rate.” It is also known as “Core Inflation” which excludes other products that are prone to price shocks, an unexpected change in the price, which may lead to a false impression to an inflation.

Stephen Stevenson