Things to know about CPI

CPI is an indicator that is quite familiar to many people that no one is unaware of when it comes to it. However, we only hear about it, but we don't actually understand what the meaning behind this indicator is. In the article below, giaphapdongoi.net will answer your questions about CPI

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1. What is CPI?

CPI stands for consumer price index - in English also known as Consumer Price Index is an index of the average consumption price calculated by basket of goods or services per capita. This index is used to represent the change in the price of goods and services over time and has the unit of percentage.

What is CPI Price Index?

CPI is an index used to measure price movements in specific commodity sectors such as services, transportation, food, etc.

2. Formula for calculating CPI

Like other indicators in the economy, the CPI is calculated as follows:
Step 1: Need to fix the cart. Research and based on these reports to fix the basket of goods, determine the amount of goods available.

Step 2: This step we will go to determine the price of each commodity on the list to calculate CPI.

Step 3: Calculate the cost of items in the cart by multiplying the quantity by the price of each product and then adding it up.

Step 4: The last step in the calculation of consumer price costs, you need to choose a fixed and reasonable time to calculate the most correct CPI according to the following formula:

CPIt = (Cost to purchase basket of goods in period t/Cost to purchase basket of goods in base period) x 100

3. Meaning of CPI

The CPI index meaningfully reflects the price movement of goods. When consumers spend money to spend on a certain good, they are contributing to the CPI, so the CPI measures. measure consumer price differences.

CPI is directly proportional to consumption, if CPI increases, consumption will also increase. Thus, measuring consumption will help you measure CPI, this index is applicable to many types of goods such as food, clothing, ...
In the field of economics, specifically, the subject of microeconomics has research on the consumer price index. It represents the relationship between inflation and deflation. We will learn a lot about the specific CPI as well as how it is calculated in this subject.

4. Impact of CPI on the economy and its limitations

As we all know, when the CPI increases, the value of goods also increases. Thus, through the adjustment and study of CPI, we know how to improve people's living standards better and better.

Thanks to the study of consumer price index, the impact on life, quality as well as factors affecting daily life.
Limitations of the consumer price index CPI:
Although it helps to improve people's quality of life, in some cases it causes limitations such as:
The degree of reflection of reality is high, suppose that when we change our purchasing preferences from good A to good B, the demand for good B will increase and the demand for good A will decrease. As a result, manufacturers can adjust the price and improve the sales situation of that good
Do not reflect new items on the market: Calculated at the time of calculating CPI, the price of goods must not change, that is, the price of goods must be fixed in the basket of goods at the time that we calculate only. consumer prices for this year.

Doesn't reflect the quality of the good, in fact an increase or decrease in the consumer price index doesn't say anything about the quality of the good, it just says the price of the good.

Limitations of the consumer price index CPI
In addition, it incorrectly reflects the following issues:

+ The general CPI in the country does not accurately reflect the income level of urban and rural people
+ CP is not specific to any specific population group
+ CPI only reflects the level of prices of commodity groups, completely ignoring environmental factors
The above useful information has given you a better overview of the CPI. Understanding the values and nature of CPI helps economists to propose appropriate measures to improve the quality of life. If you have any questions, you can contact us via hotline 0911 904 968

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