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4.2 Inflation & the Consumer Price Index

4.2 Inflation & the Consumer Price Index
  • 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.

    To learn more about the CPI, go to the United States Bureau of Labor Statistics Frequently Asked Questions.

  • 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.

    data folder

    From the spreadsheet you can see that the greatest percent increase

    happened during the 1970s.

  • Comments (3)

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    system user
    Jackie (moderator)1 decade ago |
    Christmas items experience inflation the same way day to day items do.

    Find out how much the items in the song "The 12 Days of Christmas" cost and how much the prices have risen in the last year:
    system user
    Guest   1 decade ago |
    Thanks for the information about the photograph by Dorthea Lange. I have seen this photograph many times, but I didn't know its history. It is a fantastic photograph of despair.
    system user
    Ron Larson (author)1 decade ago |
    The CPI on page 162 only shows the recent inflation rates in the United States. It is surprising to realize that inflation is a relatively recent phenomena in the U.S. On page 165, you can see that the United States was inflation free during its first 150 years of existence.