103. Specific Indexes

Numerous governmental agencies as well as the Federal Reserve System (which is not part of the federal government) and private businesses compile different indexes for a variety of purposes. The use for a specific index depends on who is compiling it and what factors go into its formulation. Perhaps the best-known index series is the Consumer price index.

1. Consumer Price Index

The consumer price index (CPI) is reported monthly by the Bureau of Labor Statistics (BLS) of the U. S. Department of Labor (by State Committee of Statistics in Ukraine). It was first reported in 1914 as a means to determine if the wages of industrial workers were keeping pace with the inflation pressures brought on by World War 1. Prior to 1978, there was only one CPI. This traditional measure reflected changes in prices of a fixed market basket of about 400 goods and services commonly purchased by “typical” urban and clerical workers. It encompassed about 40 percent of the nation’s total population.

In January 1978, the BLS began reporting a more comprehensive index, the Consumer price index for all urban consumers. It is called CPI-U, while the older index is CPI-W. The newer CPI-U covers about 80 percent of the population and includes around 3,000 consumer products ranging from basic necessities, such as food, clothing, and housing, to allowances for educational and entertainment ex­penses. In 1988 both CPI series were rebased from 1967 to 1982-1984.

Both the CPI-W and the CPI-U employ a weighting system for the types of goods and services purchased by consumers. Food, for example, is assigned a weight, or measure of relative importance, of about 18, while housing is given a weight of about 43. Medical care and entertainment each receive a weight of 5. The total weights for all commodities sum to 100. The weights on these products are adjusted about every 10 years. In this manner, the CPI-W and the CPI-U are similar to the Laspeyres index. Technically, the CPI differs slightly from a true Laspeyres because the weighting system used by the CPI is not revised at the same time that the index is rebased. The CPI is therefore sometimes referred to as a Fixed-weight aggregate price index.

In Ukraine the CPI is calculated since 1991. The index is updated monthly, usually in the beginning of the month following the subject one and 100 corresponds to the beginning of the reported month.

The CPI is highly useful in gauging inflation, measuring “real” changes in monetary values by removing the impact of price changes, and, to a limited extent, serving as a cost-of-living index. It is even instrumental in determining raises in Social Security benefits and negotiated wage settlements in labor contracts. Its many uses will be more fully examined in the next section.

2. Other Indexes

The Producer price index (formerly, the wholesale or industrial price index) is also published monthly by the BLS. It measures changes in the prices of goods in primary markets for raw materials used in manufacturing. It, too, is similar to the Laspeyres index and covers almost 3,000 producer goods. It is calculated differently for Ukrainian market.

The industrial production index is reported by the Federal Reserve System. It is not a monetary measurement, but tracks changes in the volume of industrial output in the nation. The base period is currently 1977.

There are numerous stock market indexes. Perhaps the most well-known is the Dow Jones industrial average. This index covers 30 selected industrial stocks to represent the almost 1,800 stocs traded in the New York Stock Exchange. Standard & Poor’s composite index of 500 industrial stocks is also highly watched.

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