The Consumer Price Index (CPI) is a measure of change in prices over a period of time. The CPI is made up of a fixed basket of goods that is used to determine one’s CPI. The basket of goods consists of services and goods like food, education, transportation, apparel, housing, and beverages. Some examples of these goods are cereal, milk, cheese, prescription drugs, jewelry and new vehicles (“Consumer Price Index” 2010). The basket of goods are reviewed every ten years, which is a major downside to the CPI because it doesn’t keep the system up-to-date.
Another major downside to the CPI is it only takes in account people from urban areas and does not accurately reflect the people living in rural areas. This is a downside because 65-75% of our population lives on the coastline. A major use of the CPI is adjusting the dollar value. “The CPI is often used to adjust consumers’ income payments (for example, Social Security) to adjust income eligibility levels for government assistance and to automatically provide cost-of-living wage adjustments to millions of American workers” (“Consumer Price Index” 2010).
Another use of the Consumer Price Index is it acts as a deflator of other economic series. Examples of these series adjusted include retail sales and hourly/weekly earnings (“Consumer Price Index” 2010). The CPI shows the rate of inflation and deflation over a certain period of time. In order to calculate deflation or inflation you need to first calculate the CPI for your starting and ending dates. To calculate the CPI you take the basket of goods for the current year divided by the basket of goods for the base year then times that by one hundred. The cost to attend a reputable university is rapidly rising in many aspects.
The cost of going to school at West Chester University for instate students is roughly 14,600 thousand dollars per year. “For the 2007/2008 academic year, tuition and fees at four-year public colleges rose an average of 6. 6 percent, while tuition and fees at four-year private colleges rose an average of 6. 3 percent” (“College Inflation Rate” 2008). The cost of college is rapidly increasing every year. People use the college inflation rate to predict the cost of future college expenses. Although the CPI isn’t meant to predict future price changes, many people try to predict changes.
The CPI measures seasonal changes in the price index. In September 2010 the CPI for food away from home rose by . 3 percent (“Bureau of Labor” 2010). The rising of food away from home could affect a college student because they are purchasing food away from their home because they are attending a college. Also in September of 2010 the CPI for public transportation increased by . 3 percent (“Bureau of Labor” 2010). Public Transportation can affect many freshmen in college because as a freshman one is usually unable to have a car on campus. The CPI of apparel adjusted by -1. percent in the month of September 2010 (“Bureau of Labor” 2010). The decrease in the price of apparel is positive for a college student because it will make the cost of clothes cheaper for the typical broke, college student. Although these percentages do not seem significant, it is only a seasonal/monthly rate. Yearly Consumer Price Indexes is where one will see the most dramatic changes. In April of 2004 the changes of seasonal indexes were a lot different then what was seen in September of 2010. If one attended college in 2004, he/she would have experienced different changes in the CPI.
The cost for Education/ Tuition rose by 6. 8 percent in April of 2004 (“CPI Detailed Report” 2004). For a seasonal index change this shows a much greater change than seen in September 2010. The dramatic change of tuition would absolutely affect a college student. During 2004 the annual adjusted rate for alcoholic beverages increased by 5. 2 percent (“CPI Detailed Report” 2004). The inflation of alcoholic beverages would affect a college student because a lot of college life consists of drinking alcoholic beverages on the weekend. The percentage of personal care services rose by 3. percent (“CPI Detailed Report” 2004). Examples of personal care services are services that include assistance in bathing, grooming and basic skin care. Some examples of these would be manicures, pedicures, spa treatments, and haircuts. During this month the price for Education books and supplies rose by 4. 2 percent (“CPI Detailed Report” 2004). The price of school supplies rising would put a huge burden on a college student because the students will always need to buy school supplies. Although many people believe the Consumer Price Index is an appropriate measure of the cost of living, some believe very different.
Economic analyst John Williams points out, ‘If you were to peel back changes that were made in the CPI going back to the Carter years, you’d see that the CPI would now be 3. 5 percent to 4 percent higher. ’ That is, it would now show an annual 7. 5 to 8 percent increase instead of 4 percent. Social Security recipients and other wage earners affected by cost-of-living adjustments would now be getting 70 percent more than they currently are” (Fisher 2008). The thoughts of the CPI being miscalculated this drastically has many people wondering if the CPI is as reliable as everyone makes it seem. Another area where government misreporting has completely eliminated ‘inflation’ is from furnishings, apparel, and automobiles” (Fisher 2008). The underreporting of apparel could affect a college student because many college students spend a good amount of their money on clothes and footwear. The Consumer Price Index is a measure of change in prices over a period of time. Many people try to use the CPI to predict future changes in products and services. Although the CPI gives us a measurement of changes in prices from previous years, it is impossible to accurately predict price changes in the future.