Consumer
Price Index (CPI); Meaning and Functions
What does the consumer price index mean?
The Consumer Price Index or abbreviated as CPI is an index that measures changes in the average price of a good or service that is considered important because it contributes directly to inflation. The CPI data comes from the results of monthly surveys conducted by statistical agencies at the trader level.
Surveys to monitor changes in prices for goods are a common practice in every country, including Indonesia. Apart from calculating the monthly and annual inflation rate, the consumer price index is also used to determine the cost rate at a fixed unit price. The consumer price index is usually released by statistical agencies regularly. Some are once a month, some are once every three months, depending on each country.
The consumer price index because it is directly related to inflation is important data in formulating fiscal and monetary policy in addition to data from other indices. Such as the producer price index, individual consumption, the price of imported goods, and the index of labor costs.
What goods are measured in the consumer price index survey?
The consumer price index measures changes in the prices of goods and services that are considered the most contributing to the inflation rate. There are eight types of goods and services that are included in the inflation contributor group. Namely, food and beverages, building materials, transportation, health, clothing, education and communication, fuel oil, as well as recreation, hotels, and restaurants.
The measurement results produce the main inflation data and core inflation. The main inflation data contains information on changes in commodity prices related to energy and food. The main inflation data is very volatile and is the best reference in determining the inflation rate. Meanwhile, core inflation contains information on price changes for all commodities without food and energy.
What is the function of the consumer price index for a country?
The consumer price index is important because it can show how quickly the price of a good or service changes. Price changes, directly correlated with inflation and deflation. Two things have always been the focus of attention in the implementation of the economy in each country. When prices rise rapidly, it means that the economy is in inflation, on the other hand, if prices fall, it means that the economy is experiencing deflation.
Based on observations on the consumer price index, the central bank can immediately make efforts to influence the inflation rate to stay within its target. Either by lowering, increasing, or maintaining interest rates.
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