January CPI Inflation Rate Slows

EconEye Admin

3 years ago

Ahead of January’s CPI release, the Bureau of Labor Statistics published new weights for certain categories, a process it undergoes every two years. Moving forward, it will update the weights every year. With the new changes, housing accounts for 44.4% of the index, up from 42.4%, and the food weight fell to 13.5% from 13.9%.—usatoday.com

Answer the following questions to check your understanding of the story.

What does the increased weight for housing in the CPI basket tell us?

The increased weight for housing in the CPI basket tells us that compared to two years ago, _______________.

a) the price of housing is rising for the average urban household

b) the price of housing is rising for all households

c) all households are spending a larger percentage of their budget on housing

d) the average urban household is spending a larger percentage of their budget on housing

Wrong! - How are the weights of items in the CPI basket determined? Why do the weights of items in the CPI basket change?

Good Job! - The CPI basket aims to make the relative importance of the items in the CPI basket the same as that in the budget of an average urban household. The increased weight for housing in the CPI basket tells us that compared to two years ago, the average urban household is spending a larger percentage of their budget on housing.

Why would the BLS want to update the CPI basket annually?

Annual updates to the CPI basket _____________.

a) increase Social Security checks, wage rates, and rents

b) keep the inflation rate lower than it would be otherwise

c) eliminate the new goods bias, quality change bias, commodity substitution bias, and outlet substitution bias

d) make government payments that are adjusted by the CPI more accurate

Wrong! - How do annual updates to the CPI basket influence the CPI inflation rate? What is the CPI inflation rate used for?

Correct! - The CPI is used to adjust many government payments. An inaccurate CPI can cost the government millions of dollars in overpayments. Annual updates to the CPI basket will make the CPI more accurate.

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