The consumer Price Index (CPI) is a measure of inflation. It measures the extent of demand and supply of commodity goods in the market done by the US Bureau of Labor and Statistics. These goods and services may include different items like train fares, car registration, petrol, loaf of bread, etc. Although the rates are always positive, some short term negative movements have occurred as well.
On the other hand, macroeconomics is the term used in analyzing economic factors that affect nations as it concerns other nations. This article is focused on the relationship between, Consumer Price Inflation Index and unemployment in relation to the economy of the nation.
The price level in the economy is affected by a wide range of prices in the economy, which is measured by the CPI. The change in price level is usually measured by the change in the price index over a period of time. The basket of goods measured by the CPI are those goods generally consumed by the families of a nations which provide necessities of life, such as household items, consumer electronic, clothing, shelter, and food.
If the consumer price index increases more than the family income, the households’ standard of living falls, leading to inflation. In recent years, the CPI has witnessed a continuous increase of about 6% per year. This entails that the inflation rate s equally moving at the same proportion to this increase.
Inflation refers to the increase in the general price level in an economy. As the inflation rate rises, the purchasing power declines, and money becomes devalued because more money is chasing fewer goods. With the Consumer Price Inflation Index, the government will be able to find out when there is inflationary tendencies since price movement depends on the price of goods in the market. Once the CPI is showing signs of inflation, the government can take precautionary measures to correct the imbalance before it gets out of hand.
If inflation lingers for a long time, it might lead to a rise in unemployment rate followed by other economic indicators. But the first economic indicator of an imbalanced economy is inflation. This is why the CPI is very important. The government can plan ahead with the signs provided by the CPI and proceed to ensure that the situation does not lead to other negative economic indicators.
Therefore, the CPI is a vital indicator when dealing with inflation and other macroeconomic issues. For more updates and a good feed source on strategies to deal with it buy and read this gold investing book.