Price Stability

Average level of prices in the economy is neither increasing nor decreasing.

Consumer Price Index

A number used to compare the average level of prices for a number of typical items bought by an urban family. (US Labor Department Bureau of Labor Statistics)

Inflation

A sustained rise in the average level of prices.

Deflation

A sustained decline in the average level of prices.

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Rate of Inflation Recent Year CPI – Earlier Years CPI

_________________________ _ X100

Earlier Years CPI

CPI Breakdown

16%

41%

4%

17%

6%

6%

6%4%

Food and Beverages

Housing

Apparel

Transportation

Medical Care

Recreation

Education andcommunication

Other Good andServices

Limitations of the CPI

1. You may not buy the particular goods on the CPI.

2. It only considers good that are bought and sold in the marketplace.

3. It doesn’t consider the quality of goods.