Business Math JOHN MALL JUNIOR/SENIOR HIGH SCHOOL

Economic Statistics

Consumer Price Index (CPI)

 It is a widely reported measure of how much the prices of goods and services typically bought by consumers have changed when compared to a base period.  A base period is a period of time with which comparison are made.  The base period for most of the items in CPI is Consumer Price Index (CPI)

 The CPI may be expressed in several ways. For example, the CPI for “All Items” in 2003 is  This means that the cost of goods in 2003 was 184% of their cost in the base period.  The percent increase in prices from the base period is 84%.  Looking at the relationship in another way, it cost $184 in 2003 to buy the same goods which you would have paid in the base period. Consumer Price Index (CPI)

 The CPI uses a single number called an Index Number to compare price changes to the base period. The index number for the base period is always equal to 100.  The historical report of the CPI shows index numbers of various categories of consumer goods and services. Consumer Price Index (CPI)

 Use the CPI Table, by what percent did the CPI for Apparel increase from the base period to 1994?  30.5%  To 2003?  19% Checking for Understanding

 For consumers, business firms, organizations and the government, inflation means that the prices of goods and services that they buy are rising.  The US Department of Labor publishes the Consumer Price Index report that tells how much inflation has occurred within the past year.  A calculation in the report, called the rate of inflation, shows the percent increase in prices from the previous year. Rate of Inflation

 The CPI Table shows an index number of for 2002 and an index number of for What was the rate of inflation for 2003, to the nearest tenth percent?  – = 4.1  4.1 / = or 2.3%  The rate of inflation for 2003 was 2.3%  The inflation rates are expressed as percentages. If CPI is 2.3%, this means that on average, the price of products and services we buy is 3% higher than a year earlier. Example

 Find the rate of inflation for 1999, to the nearest tenth percent  2.2%  Find the rate of inflation for the Medical Care Category for 2002  4.7% Checking for Understanding

 When inflation occurs, each dollar buys less than it did in the past.  Suppose a Department of Labor report shows that the purchasing power of a dollar in 2003 is $  In the base period, , the dollar was worth its full value of $1.00.  In 2003, the dollar was worth $0.53 compared to the base value.  This means that a 2003 dollar could buy only about $0.54 worth of the same goods that could have been bought in Purchasing Power of Dollar

 Use the CPI Table to calculate the purchasing power of the dollar for $2,000, to the nearest 10 th of a cent.  172.2: CPI index for : CPI index for base period  100 / = or or $0.581 Example

 Use the CPI Table to find the purchasing power of the dollar in 2002 to the nearest tenth of a cent.  $0.556  Use the CPI Table to find how much a 1997 dollar is worth compared to , to the nearest tenth of a cent.  $0.623 Checking for Understanding

Consumer Price Index (CPI)