How is the Consumer Price Index Used?
Whichever index selected, the CPI is used primarily for three purposes: to indicate economic activity, to deflate other economic series in order to make the data comparable, and to adjust dollar values so that one can compare item prices over a span of time. The 36-month average in the 1982-1984 inclusive time frame is used as the base period. It is given an index value of 100. Strictly speaking the CPI is not a cost of living index, although it is used as such, since it does not measure other factors that affect consumer well being such as crime. It is also very important to realize that the CPI is relevant to the average household, and not to one s specific situation. If, for instance, a person s house is fully paid, and without a mortgage or other instrument, the CPI would overstate this cost of living . It is sometimes assumed that a provision is made for this expenditure in the index but, in fact, this is not the case. The CPI is an index of price change only, and it does not refl
