How does the CPI (Consumer Price Index) affect inflation?
Inflation is not good for an economy, as rising inflation often makes it harder for consumers in a nation to buy even basic goods, meaning there is less free money for retail sales and spurring economic growth. The CPI report shows how heavily inflation is affecting a nation, and inflation doesn’t just strike an economy that is struggling – in fact inflation can crop up in a booming economy that is growing too fast without any checks or balances! This is why inflation needs to be measured aside from other economic indicators. For example, in an economy that started booming, similar to the way China has grown in recent years, more people make more money. They start buying more. Stores not directly affected notice this, and raise their prices. So the workers demand more money, the company pays more money, and the stores keep raising prices. Without any checks or balances, this economic boom can send the inflation through the roof. A CPI report can show this, and encourage the government
CPI CAN affect inflation by inaccurately overestimating or underestimating inflation levels, thereby causing consumer sentiment. Changes in CPI are used to assess price changes associated with the cost of living. In this instant information age, this can cause market swings and push inflation further without accurate cause.
