By michael vivar
Having at least a modicum of financial literacy is useful no matter who you are. It helps to make many aspects of the world like local politics and social dynamics more understandable.
A good start is to watch and read financial news outlets. Novice consumers might notice that these programs and papers use jargon assuming common knowledge.
One of the "inside baseball" terminology thrown around is the "Consumer Price Index" (CPI). Here's a quick primer to get some clarity.
The US Bureau of Labor Statistics (BLS) measures CPI along with other indicators including labor market activity, working conditions and productivity.
CPI is a statistical measure of pricing for goods and services purchased and consumed by Americans. It sounds simple but it's one of the most complex microeconomic indicators.
BLS takes brackets of household expenditures including transportation, shelter and food and weighs them by effect. It then gauges them over a set time which is how CPI is determined.
The main importance of CPI is to track the rate of inflation in the US economy, which is a key barometer of its health. This has knock on effects with federal policy.
When CPI and inflation get too high, the Federal Reserve normally raises interest rates which reduces demand on goods and loans. The initiative helps to keep prices low.
High interest rates also attract foreign investment in US Treasury bonds. This infuses the federal government with liquidity for programs like military and social spending.
CPI and inflation also affect entitlement program payouts. Rises will increase cost of living adjustments to Social Security and welfare beneficiaries.
Outside factors like the pandemic and looming trade wars increasingly affect CPI. It's a small look at how the global economy can have an impact on domestic households.