The Consumer Price Index (CPI), released by the US Bureau of Labor Statistics, evaluates fluctuations in the cost of living by measuring the changes in prices consumers pay for a set of items. CPI is used as the headline figure for inflation. In other words, inflation reflects a decline in the dollars' purchasing power. This means that the dollar depreciates in value and each dollar is capable of buying fewer goods and services. In terms of inflation measurement, CPI is the most obvious way to quantify fluctuations in purchasing power. The report keeps track of changes in the price of goods and services that a typical American household may purchase. Increasing the CPI is indicative of more dollars being required in order to purchase the same sum of basic consumer items. Inflation is usually bad news for the economy due to it causing instability, uncertainty and hardship. In response to inflation, the Fed may increase interest rates. The Fed, however, relies on the PCE Deflator as its primary means to determine whether inflation is occurring. Changes in prices have the tendency to cause consumers to swap over from the purchase of one good to that of a less expensive other. This tendency, however, is not yet one that the fixed-basket CPI figure accounts for. Based on the fact that the PCE Deflator is a more comprehensive calculation in relation to changes in consumption, it is the figure that the Fed prefers. The figure is released on a monthly basis, as either month over month annualized percentage change or percentage change for the full year. Seasonally, the figure is altered accordingly, in order to account seasonal consumption patterns.The CPI is comprised of over 200 categories of goods and services which are divided into 8 main groups. Each of the aforementioned groups have a different weight; Housing, Transportation, Food, Medical Care, Education and Communication, Recreation, Apparel, and Other Goods and Services.

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