There are several factors that cause a change in CPI, such as the buying habits and trends of the consumer and population shifts. Substitution and quality changes of products are also important factors that can affect the CPI. Computations for CPI are done regularly, such as in a quarterly or monthly basis, in order to keep track of a country’s economic state and rates of inflation.
Consumer price index (CPI) is a statistical tool that can measure how prices of certain products and services go up or down over a period of time. This “market basket” of goods can include food, clothing, and electronic equipment, while intangible services can be in the form of medical care, education, and insurance. The prices of these products are collected and, using a certain formula, computed to come up with the CPI. In this way, people can monitor inflation rates, their current cost of living, and the value of the country’s currency. It should be noted, however, that the CPI is not always an accurate reflection of a country’s economic condition.
One important factor that causes a change in CPI are the buying habits of consumers. In a hypothetical example, “going green” campaigns may cause more people to lead a vegetarian lifestyle, triggering a higher demand for agricultural produce and a lesser one for meat products. As a result, prices for fruits and vegetables go up, while prices for meat and poultry go down, affecting the CPI. Buying habits are also associated and affected by population shifts. For example, if a country has more youth than other population groups, then youth-oriented products and services may experience higher demands and costs, and thus a change in CPI.
A change in CPI can also be brought about by product substitution, as can be seen in vehicles. Several car models are introduced every year, and newer models are often offered at a more expensive price, while older models can decrease in value. These substitution events ultimately affect the CPI, which includes transportation in its data. The same can also be observed in electronic gadgets like mobile phones and laptops as companies often introduce updated models.
Quality changes of certain products will also affect the CPI. For example, if the formula of a certain gasoline brand was improved, it is expected that the price of the gasoline will rise, probably causing the CPI to increase as well. In medications, once a patent for a certain brand expires, a specific drug can be sold as a generic at a lower cost, possibly causing the CPI to drop. In cases of quality changes, a change in CPI should not be interpreted as a sign of inflation.