The CPI is composed of price indices for eight categories of goods: food, tobacco, alcohol and supplies, clothing, household equipment and maintenance services, recreational and cultural goods and services, health care and personal goods, transportation and communication, and housing.
CPI is an important macroeconomic indicator reflecting changes in the price level of consumer goods and services related to the lives of residents, and an important indicator for macroeconomic analysis and decision-making, as well as national economic accounting.
Generally speaking, the level of CPI has a direct impact on the introduction and strength of the country's macroeconomic control measures, such as whether the central bank to adjust interest rates, whether to adjust the reserve requirement ratio and so on. At the same time, the level of CPI also indirectly affects the capital market (such as the stock market, futures market, capital market, financial market) changes.
Expanded Information
Basic Functions of CPI Index
1, Measurement of Inflation (Deflation).CPI is an important indicator of inflation. Inflation is a general and sustained rise in the price level. the CPI can illustrate the severity of inflation at a certain level;
2, national economic accounting. In national economic accounting, a variety of price indices are needed. Such as the consumer price index (CPI), producer price index (PPI) and the GDP deflator, accounting for GDP, so as to remove the impact of price factors.
3. Contractual indexing adjustments. For example, in salary and compensation negotiations, because employees hope that salary (nominal) growth can be equal to or higher than the CPI, and hope that nominal salaries will be automatically adjusted with the rise of the CPI. The timing of the adjustment is usually after inflation occurs, and the magnitude is lower than the actual inflation rate.
4. Reflecting changes in the purchasing power of money: The purchasing power of money refers to the amount of consumer goods and services that can be purchased per unit of money. Consumer price index rose, the purchasing power of money is down; the opposite is up. The inverse of the consumer price index is the purchasing power of money index.
5. Reflecting the impact on workers' real wages: an increase in the CPI means a decrease in real wages, and a decrease in the CPI means an increase in real wages. Therefore, the consumer price index can be used to convert nominal wages into real wages.
6. Impact of CPI on the stock market: In general, when prices rise, stock prices rise; when prices fall, stock prices fall.
Baidu Encyclopedia - Consumer Price Index