The Consumer Price Index or its acronym IPC is an index in which the prices of a group of products called “family basket” are valued, which is determined on the basis of the survey continues to the family budget. It is responsible for measuring the price level of a basket of services and goods that are purchased by households, it is a positive or negative percentage indicating in the first case an increase in prices and in the second case a fall in prices. themselves.
Characteristics of the CPI:
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- Reliable and representative: take the samples randomly covering as much of the population as possible.
- That allows to establish comparisons with other CPIs of other countries or periods in the same country. In the European Union, 2020 is the base period of the new system in force, so the indices calculated after this date will refer to that year.
The purpose of the CPI is to measure the evolution of the prices of different goods and services. Depending on the variation of the CPI, a family will know if their income will be sufficient or not; For example, if there is a 3% increase in the CPI, this will mean that families will have to spend 3% more to purchase the same products from the basic basket. Its variation is of vital importance for the review of salaries, pensions, insurance premiums, lease contracts, among others. The loss of purchasing power derives from the fact that the rate of increase of the
It should be taken into account that if the CPI rises and wages do not rise in a similar way, the purchasing power level will be lost. This is why it is important to use the CPI in the observation of the economy in general on a continuous basis, which promotes predictions by the government and private companies, what they call the leading CPI indicator.
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The calculation of the CPI is carried out by verifying the evolution of the prices of a total 489 items in 30,000 establishments and with these data the Laspeyres formula is used which consists of dividing the resulting multiplication between the new prices and the previous quantities with the result of the multiplication of the old prices with the previous quantities.
