### 4.2 Inflation & the Consumer Price Index

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• Math Help

The United States Bureau of Labor Statistics (BLS) publishes more than one consumer price index (CPI). For instance, BLS keeps track of the changes in the prices for milk, bedroom furniture, clothing, airline fares, hospital services, televisions, college tuition, and haircuts. The CPI used in Section 4.2 measures the average change in prices paid for consumer goods and services by urban consumers. Be sure you understand that the numbers in the CPI are not dollar values, but measures of the change over time relative to their reference base of 100.

Most of the specific consumer price indexes have a 1982-84 reference base, or "base year." (Note: For the sake of simplicity, we use 1983 as the base year in the text.) That is, BLS sets the average index level equal to 100. You can check this for the table given in Section 4.2 by using the values 96.5, 99.6, and 103.9 (the index values for 1982, 1983, and 1984, respectively).

BLS then measures changes in relation to the reference base. An index of 110, for instance, means there has been a 10% increase in price since the reference base. Similarly, an index of 90 means a 10% decrease.

In 2007, the BLS began to publish its consumer price indexes rounded to three decimal places rather than one. For simplicity, the CPI given in Section 4.2 lists the numbers rounded to one decimal place.

• Consumer Suggestion

Did you know that if you had just \$10,000 in the bank and you went back in time to 1913, you would have the same buying power as \$222,447.47 in 2011? Check out the United States Bureau of Labor Statistics website to play around with their inflation calculator, and numerous other fun tools, as well as view a wealth of information on subjects such as:

• inflation and prices
• pay and benefits
• unemployment
• productivity
• international labor comparisons
• job growth and labor turnover
• Checkpoint Solution

Assuming that each decade begins and ends on years that are multiples of ten, you can use the formula

to determine the percent increase for each decade.

A spreadsheet showing the data is provided below.

From the spreadsheet you can see that the greatest percent increase

happened during the 1970s.

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