Data from the Bureau of labor and statistics show that CPI for all urban consumers of apparel in the USA for the period under consideration has continued to decline from a high of 129.283 to 118.840 in 2015. The figures indicate that CPI declined by -8.078 in the period under review. The most significant change was reported between 1995 and 2010 when CPI recorded a decline of -12.70%. Apparel prices paid by the urban consumers on average decreased in the period under review. It shows that there was deflation in the apparel prices throughout the period. The consumer price index for apparel is an exception given that CPI for all item continued to grow as shown by the data. The excel sheet indicates the analysis of apparel less footwear and all items where the second shows a trend of continuous growth over the period with an average of 55% from the base period of 1995. The following graph shows a comparison of the Apparel less footwear versus CPI for urban consumers for all items
Source: BLS, (2018)
According to the international labor office (2005), CPI measures the percentage change in the prices for a given time. It measures the differences in the prices of commodities consumed by the households. Substantial changes have the ability to affect the real purchasing power of the consumers. A price index reflects an average movement as the prices if the various goods cannot change in the same instance. The price index is often assigned a 1 or 100 in the starting period for example 1995 in the case of the apparel CPI from the Bureau of labor. Any other subsequent period indicates percentage changes in the CPI from the reference period. Price indices can also be used for measuring price levels in different cities, regions, and countries for comparison purpose.
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CPI measures adjustments in the cost of living. It reflects the changes in the overall cost of an average consumer in acquiring a basketful of goods and services in a period for example yearly or monthly (Venkadasalam, 2015). Economies face price fluctuations over time but a sudden change can affect the economy. CPI can be used to determine whether the economy is experiencing stagnation, inflation or deflation. The metrics are used for many financial decisions including the Federal Reserve interest rate as well as hedging.
The Bureau of Labour Statistics releases CPI data each month where there are two groups involved; CPI for urban wages earners as well as clerical workers. It also includes CPI for urban consumers as well as chained CPI for the entire urban consumers and chained CPI for urban users of a commodity. The CPI is composed from the base year where detailed expenditure information is collected from different households. Different techniques like interviews and diaries provide essential information for computing CPI. Over 200 goods and services are used to compute the CPI. The categories are put into 8 categories including transportation, education, housing, medical, apparel, recreation, care, communication and other goods and services. The prices of over 80,000 products are collected from the market each month.
A precise measurement of the changes in the cost of living helps policymakers decide on the best cost of action once they are aware of the inflation levels. High inflations can be detrimental to the country if left unchecked. An increase in the prices beyond some point leads to hyperinflation like happened recently in Zimbabwe where money loses value and it has to be revalued. Similarly, deflation affects the economy if it is reported for an intended time. Inflation in moderation has the ability to promote employment. Similarly, deflation at a slow rate is beneficial to the consumer as they enjoy the same products or services at cheaper prices. However, when deflation exceeds some point it is no longer beneficial but can hurt the economy further. A case in point is during great depressions where people are unable to afford goods or services at any prices (Turvey, 2004).
The CPI can be used by human resources managers to adjust the payments for their employees to be in line with deflation. It can be used to determine annual salary increments for the employees to factor inflation. Managers' must ensure that the real income of an employee is growing and the benefits from salary increments are not eroded by inflation. They should ensure that they are aware of the current CPI so that they can develop compensation programs that consider inflation.
References
Consumer Price Index for All Urban Consumers: All Items. (2018). Retrieved from https://fred.stlouisfed.org/series/CPIAUCSL#0
Consumer Price Index for All Urban Consumers (CPI-U): U. S. city average, by expenditure category. (2018). Retrieved from https://www.bls.gov/news.release/cpi.t01.htm
ILO. (2005). Consumer Price Index Manual . International Labor Office.
Turvey, R. (2004). Consumer price index manual . [United States]: International Monetary Fund.
Venkadasalam, S. (2015). The Determinant of Consumer Price Index in Malaysia. Journal Of Economics, Business, and Management , 3 (12). doi: 10.7763/joebm.2015.v3.344
