The CPI or consumer price index is a monetary indicator by means of which the calculation of the value of the prices of a type of articles that is more widely used in the term of family basket or family basket is carried out, which concludes the approximate calculation of a family in the amount of what they commonly acquire of products and its variant in terms of price, whether positive or negative, increasing or discounting the percentage depending on the particular case.
The CPI is one of the most significant constants of the individual economy. Well, it is in charge of making a balance in the prices of the country's goods and services, hence the importance of knowing it and knowing that it is closely related to the rises in the prices of food and products that we usually buy and thus compare it with our cute tickets and if it is fair to these.
The high percentage of consumer prices is nothing other than the result of a great loss of purchasing power since it is reflected in the little possibility of buying goods and services with the same amount of money as before. Being this way because the CPI does not look at prices as they are, that is to say that what it does is that it looks at the changes of all of them together month by month and year by year.
The short and easy-to-understand words IPC is the economic indicator that helps us to understand and know how costs are changing in a comparison between the current and the previous month, but only of those important and necessary products for the daily life of every family and that is why they are all concentrated in the family basket or basket. In short, it is a useful and extremely important tool that cares for and protects price variation data month after month and thus anticipates future problems due to inflation.
What is inflation?
We can not speak of CPI if we do not know what we mean by the term inflation, since they are two factors that always go hand in hand. So we will give you a brief explanation below.
Inflation is the fall or devaluation of money in relation to what can be bought in kind in exchange for such money; For example, if we buy an item daily and as the days go by, this cost has an increase, because we are being victims of inflation, in short, inflation is the increase in the price of the items that we buy regularly, just as if we pay for a service and this increases its cost since for the same thing that we did before, now we are obliged to pay more.
Now you can see that it is very important because it helps us to control the country's economy, because some of the problems of other countries in the world are caused by a huge lack of control of inflation. The healthiest thing for the economy is for prices to rise moderately since a decrease in price is not good for the economic equilibrium of the countries as this causes excess confidence in investments and delays their operations, which leads them not to generate profits and in the future disappear, that causes unemployment and greater economic chaos.
For control all this inflation We must measure it and that is why this basket or family basket is carried.
How can I calculate the CPI?
There are endless products for sale and services that we can all buy and that it becomes little possible for all of them to register. That is why the CPI is calculated based on an estimate of what we call the basket And this is how it selects some products and services and forms sections with groups and subgroups respectively. The basket is made up of the most common things as well as the most necessary and common services of a normal family with an equally normal and real economy.
To do the CPI calculation a comparison is made in the cost changes of 489 products. This is done through surveys carried out in 30.000 establishments throughout 177 municipalities of the Spanish territory, that is, 52 capitals and 125 that do not belong to capitals; These surveys are conducted either by phone, fax, email or in person. It is important to emphasize that these surveys do not include any purchase that has already been for offers, balances or sales.
Now we will explain how to make the calculation equation that is extremely easy and that is summarized in the following:
- The new price of the item for the old quantity over the old price of the item for the old quantity.
- The benefits acquired by species such as the following:
- Products made by itself, payment in kind, free or bonus food, property income when it is owned or loaned, free, etc. Like the random groups and lotteries.
Why is the CPI so important?
El CPI is one of the many important measures of balance in economic life of the country as it is the main indicator tool of how inflation is evolving. This great importance is based on the fact that it is the main key indicator for the analysis and realization of the calculation of wage increases, among others such as income from homes or business premises.
That is why the CPI is used for the various labor agreements that are the basis for the realization of the salary increase at the beginning of each year that almost always part of this agreement carries a small extra percentage to increase. It also influences the annual lease increases or to calculate what must be given for food support, among others.
It was also important to pension increase percentages A change was made in 2014 that indicates that they will no longer be linked for this calculation, that is, it will be carried out by doing a small operation that, calculated with other elements, will yield this result. But still the reference of IPC will be a comparative benchmark since if it is less than the compared bar, the adjustment to the provisions of the IPC will have to be made.
The CPI does not influence the price of the itemsIt only regulates when their cost goes up or down and makes the percentage that goes according to those products.
There are several ways to present it, but the most common is by performing the both to generate an indicator and its variant from the previous month.
In what period of time is it calculated?
It is carried out every month and is published in the middle of the month that follows the month already calculated. Being that way helps you to see how the economic environment is changing and of course its inflation for a set of time. This continuous change gives the possibility of predicting and is used by the government or companies to make decisions about what they will do in the future.
Underlying inflation
Core inflation is the result of the increase in the CPI and when it discriminates between energy products and processed foods for being those with unstable changes for various reasons
Energy products: This section includes fuels such as gas, gasoline, electricity, etc.
Processed food products: This section includes fruits, cereals, vegetables and other products in this category.
The underlying inflammation is applied as a sub-apparatus in which goods and services are discriminated from those that are unstable in character and are not of the characteristics of the rest, this gives us to understand that what is reported regarding it are lower than those regarding general inflation.
That is why it is a irreplaceable marker that helps us understand price increases and what the banks are deciding and what is happening in the economy worldwide.
It is an excellent tool that projects price variations without error and through this measure of change by the consumer price index (CPI)
The way to calculate underlying inflation is by subtracting the 2 sections of products (energy and manufactured) in order to obtain it.
Core inflation is recorded and deducted at the National Statistics Institute (INE) in conjunction with the general CPI and the harmonized CPI.
Once we have understood what the CPI is and the importance it has in our economy both in the country and worldwide, we can realize the benefits it brings us, because it helps us to realize when something is wrong in the economic processes because there will be an increase in the cost of items and services that cover our basic daily living needs.