Inaccuracies Of The Consumer Price Index (cpi) :: essays research papers

Inaccuracies of the Consumer Price proponent (CPI)     The Consumer Price Index is a measure of the prices of a fixed marketbasket of well-nigh 300 consumer goods and services purchased by a "typical" urbanconsumer. The 1982-1984 current serves as the footstall period so analysts can compargon early(a) years changes with this base period. The composition of the marketbasket is fixed in the base period and is assumed not to change from one periodto another. The curtilage for the assumption is because the CPI measures thecostliness of a constant standard of living. Critics form of address that the CPI isinaccu target because it overstates the increases in the cost of living. For thisreason, the CPI has been said to be inaccurate.     First, consumers do change their spending patterns. Even though thecomposition rancid the market basket is assumed not to change, it does becauseconsumers change their spending patterns. Because consu mers tack lowerpriced products in lieu of higher priced ones, the weight has shifted. The CPIassumes that this does not occur and therefore it overcompensates the standardof living.     Secondly, because the base period was over a decade ago, the quality ofthe products has increased significantly, and therefore the prices should behigher. The CPI, however, assumes that the increases in prices is a result ofinflation rather than quality improvements which is false. Here also, the CPIoverstates the rate of inflation.     Many consumers do not mind the overcompensation of the CPI because in nearly cases it means more money in their pockets, provided there are some consequences.This whitethorn cause an ongoing inflation trend. The reason why the government doesnot restrict it is because they are worried about get re-elected. Even ifthe President does call for a revision of the CPI, Congress would shoot it tokeep their positions.      Another consequence of the overstated CPI involves the adjustment of appraisebrackets. Their intent of indexing is to prevent inflation to cause people to beplaced into a higher tax bracket. For example, if your income increases by 10%,that may put you in a higher level tax bracket, but if product prices have also