Editing Consumer price index (section)

==Overview==
A CPI is a statistical estimate constructed using the prices of a sample of representative items whose prices are collected periodically. Sub-indices and sub-sub-indices can be computed for different categories and sub-categories of goods and services, which are combined to produce the overall index with weights reflecting their shares in the total of the consumer expenditures covered by the index.  The annual percentage change in the CPI is used as a measure of [[inflation]]. A CPI can be used to index (i.e., adjust for the effect of inflation) the real value of [[Wage|wages]], [[Salary|salaries]], and [[Pension|pensions]]; to regulate prices; and to deflate monetary magnitudes to show changes in real values. In most countries, the CPI is one of the most closely watched national economic statistics.
[[File:Inflation compared to federal funds rate.jpg|300px|right|thumb|Inflation compared to [[federal funds rate]] ]]
[[File:US Consumer Price Index Graph.svg|thumb|upright=1.35|right|A graph of the [[United States Consumer Price Index|US CPI]] from 1913 ({{blue|in blue}}), and its percentage annual change ({{red|in red}})]]

The index is usually computed monthly, or quarterly in some countries, as a weighted average of sub-indices for different components of consumer expenditure, such as food, housing, shoes, and clothing, each of which is, in turn, a weighted average of sub-sub-indices. At the most detailed level, the elementary aggregate level (for example, men's shirts sold in department stores in San Francisco), detailed weighting information is unavailable, so indices are computed using an unweighted [[Arithmetic mean|arithmetic]] or [[geometric mean]] of the prices of the sampled products. (However, the growing use of [[Barcode reader|barcode scanner]] [[data]] is gradually making weighting information available even at the most detailed level.) These indices compare prices each month with prices in the price-reference month. The weights used to combine them into the higher-level aggregates and then into the overall index relate to the estimated expenditures during the preceding whole year of the consumers covered by the index on the products within its scope in the area covered. Thus, the index is a fixed-weight index but rarely a true [[Laspeyres index]] since the weight-reference period of a year and the price-reference period, usually a more recent single month, do not coincide.

Ideally, all price revalidations are accepted, and the weights would relate to the composition of expenditure during the time between the price-reference month and the current month. There is a large technical economics literature on [[List of price index formulas|index formulas]] that would approximate this and that can be shown to approximate what economic theorists call a true [[cost-of-living index]]. Such an index would show how consumer expenditure would have to move to compensate for price changes so as to allow consumers to maintain a constant [[standard of living]]. Approximations can only be computed retrospectively, whereas the index has to appear monthly and, preferably, quite soon. Nevertheless, in some countries, notably the United States and Sweden, the philosophy of the index is that it is inspired by and approximates the notion of a true cost of living (constant utility) index, whereas in most of Europe it is regarded more pragmatically.

The coverage of the index may be limited. Consumers' expenditure abroad is usually excluded; visitors' expenditure within the country may be excluded in principle if not in practice; the rural population may or may not be included; certain groups, such as the very rich or the very poor, may be excluded. Savings and investment are always excluded, though the prices paid for financial services provided by financial intermediaries may be included along with insurance.

The index reference period, usually called the base year, often differs both from the weight-reference period and the price-reference period. This is just a matter of rescaling the whole [[time series]] to make the value for the index reference period equal to 100. Annually revised weights are a desirable but expensive feature of an index; the older the weights, the greater the divergence between the current expenditure pattern and that of the weight reference period.

It is calculated and reported on a per region or country basis on a monthly and annual basis. International organizations like the [[Organisation for Economic Co-operation and Development]] (OECD) report statistical figures like the consumer price index for many of its member countries.<ref>{{cite web|url=https://data.oecd.org/price/inflation-cpi.htm |title=Inflation (Consumer Price Index)|publisher=OECD|access-date=September 12, 2019}}</ref> In the US the CPI is usually reported by the [[Bureau of Labor Statistics]].<ref>{{cite web|url=https://www.bls.gov/cpi/ |title=Consumer Price Index|publisher=U.S. Bureau of Labor Statistics|access-date=September 13, 2019}}</ref><ref>{{cite web|url=https://www.bls.gov/opub/hom/pdf/cpihom.pdf|title=The Consumer Price Index|publisher=U.S. Bureau of Labor Statistics|access-date=September 13, 2019}}</ref><ref>{{cite web|url=https://www.bls.gov/cpi/questions-and-answers.htm|title=Consumer Price Index Frequently Asked Questions|publisher=U.S. Bureau of Labor Statistics|access-date=September 13, 2019}}</ref>

An English economist by the name of [[Joseph Lowe (economist)|Joseph Lowe]] first proposed the theory of price basket index in 1822. His fixed basket approach was relatively simple as Lowe computed the price of a list of goods in period 0 and compared the price of that same basket of goods in period 1. Since his proposed theories however were elementary, later economists built on his ideas to form our modern definition.<ref>{{Cite book |title=The new Palgrave dictionary of economics |date=2019|isbn=978-1-349-95121-5|edition=Living |location=London|oclc=1111663693| last1=Blume | first1=Lawrence E. | last2=(Firm) | first2=Palgrave Macmillan | last3=Durlauf | first3=Steven N. }}</ref>