RS7 - CPI

Russ Special number seven was the Planet Money podcast titled "The Price of Lettuce in Brooklyn," they talked about how certain individual items sold at different stores and how they can affect the CPI levels in the economy. CPI stands for the Consumer Price Index, this system produces a monthly report on the prices urban customer pay on certain goods or services.  The CPI affects nearly every American due to the many ways it is used especially the three main things CPI affects.  CPI is used as an economic indicator and lets us know how well our economy is doing or even how bad it is doing.  CPI also is used as a deflator of other economic series.  And the third major thing CPI has affect on is the adjustment of the dollar value. Not only does the CPI take in the purchases in the market place but it also takes in the aspects such as governmental and environmental factors that affect human beings well being.

The people who have the job of going around to these different stores and inspecting the one hundred or so items that are specifically picked by this government agency go in and will find the price of the items and for the some they will also be weighed.  This way you can see the deflation.  In the podcast the planet money person went with one of the CPI analysts and they went to a grocery store and the product they had to look at was lettuce.  They got the price and then they got the weight of the bag.  The lettuce actually went down a significant amount in value. Almost thirty percent the lettuce dropped.  Then they went to the retail clothing outlet and looked for woman's dresses.  The owner of the store came over to the Planet Money lady and said he felt somewhat important because his products actually had some affect on the CPI.  If you think about it the price of one bag of apples or just one article of clothing can be part of an answer to how the economy is doing.  If the price is up then you can make the argument that the economy is struggling because companies need more money so they boost the prices.  Or if the company lowers prices they might be doing well so they can afford to lower the price to get more customers or the answer is actually the reversed answer, meaning the price is lower so they can bring in more customers and create more income then rather sitting at a higher price and not getting the customers because they dont have the money to afford a highly priced item.  

The CPI system is very complicated but very simple at the same time, that is why they have trained employes and a good system set in place allowing the people to do their job effectively. I find the CPI interesting in the way that it works because of the way that through just a few items you can tell how the economy is heading.