Actual CPI-U Basket of Goods

Khan Academy
14 Feb 201207:27
EducationalLearning
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TLDRThis video delves into the Consumer Price Index (CPI), specifically the CPI-U for urban consumers, as reported by the Bureau of Labor Statistics. It outlines the weighted 'basket of goods' that represents average consumer spending, including categories like food and beverages (15%), housing (41%), and transportation (17%). The video also discusses how these weights can change over time due to shifting consumer habits and market developments. It provides a detailed look at the price indices for each category from November and December 2011, comparing them to the base years of 1982-1984 and 1967, highlighting the significant increase in the cost of items like medical care and the relative stability or decrease in others like furniture and motor vehicles.

Takeaways
  • 📈 The Consumer Price Index (CPI) measures the average change over time in the prices paid by urban consumers for a basket of goods and services.
  • 📊 The CPI-U, or CPI for urban consumers, is the most commonly referenced index as it covers the majority of consumers.
  • 🏠 Housing and shelter constitute the largest portion of the CPI basket, accounting for about 41% of the average consumer's spending.
  • 🍽️ Food and beverages make up approximately 15% of the CPI basket, with a further breakdown into categories like cereals, meats, dairy, and fruits and vegetables.
  • 🚗 Transportation costs represent 17% of the CPI basket, emphasizing the significance of vehicle-related expenses in the average consumer's budget.
  • 👕 Apparel spending accounts for 3.6% of the CPI basket, indicating a relatively smaller portion of the average consumer's spending compared to other categories.
  • 💊 Medical care expenses have significantly increased since the early '80s, becoming four times as expensive relative to the base year of 1982-1984.
  • 📺 The cost of video and audio equipment, as well as communication services, has decreased over time, reflecting technological advancements and market changes.
  • 🚬 Tobacco and smoking products have become dramatically more expensive due to increased taxation and regulatory measures.
  • 💻 Despite advancements in technology, the cost of personal computers has not increased significantly when adjusted for quality improvements.
  • 📉 The CPI basket's weightings are subject to change over time to reflect shifts in consumer habits, the emergence of new goods and services, and changes in market prices.
Q & A

  • What is the purpose of the video?

    -The purpose of the video is to explore and explain what the actual basket of goods looks like for the Consumer Price Index (CPI).

  • Where can one find the Consumer Price Index (CPI) data discussed in the video?

    -The CPI data can be found in a press release issued by the Bureau of Labor Statistics, which can be located by searching for 'CPI' or 'CPI-U' on their website.

  • What does CPI-U stand for and why is it significant?

    -CPI-U stands for Consumer Price Index for All Urban Consumers. It is significant because it represents the typical basket of goods for the average urban consumer, which is the majority of consumers.

  • What is the base year for the CPI as mentioned in the video?

    -The base year for the CPI is a range between 1982 and 1984, with 100 being the reference point unless otherwise noted.

  • How much of the average urban consumer's spending is allocated to food and beverages according to the video?

    -According to the video, about a little under 15% of the average urban consumer's spending is allocated to food and beverages.

  • What percentage of the consumer's spending is on housing according to the CPI data?

    -The CPI data indicates that 41% of the consumer's spending is on housing.

  • What is the significance of the weights assigned to each category in the CPI basket of goods?

    -The weights assigned to each category in the CPI basket of goods represent the proportion of spending that the average urban consumer dedicates to each category, which is crucial for calculating the overall CPI.

  • How does the video explain the changes in the CPI over time?

    -The video explains the changes in the CPI over time by comparing the price indices for each category in recent years to the base year, showing how much more (or less) expensive items have become.

  • Why do the weights in the CPI basket change over time?

    -The weights in the CPI basket change over time due to shifts in consumer habits, the emergence of new goods and services, and changes in prices.

  • What is the significance of the year-over-year and month-over-month changes mentioned in the video?

    -The year-over-year and month-over-month changes are significant as they provide insights into the rate of inflation and price stability, showing how prices have changed compared to the previous year and the previous month.

  • How does the video illustrate the relative cost changes of different categories over time?

    -The video illustrates the relative cost changes by comparing the price indices of different categories to the base year, highlighting which items have become more or less expensive over time.

Outlines
00:00
📊 Understanding the Consumer Price Index Basket of Goods

The speaker begins by explaining the purpose of the video: to delve into the actual basket of goods that constitutes the Consumer Price Index (CPI). They reference a table from the Bureau of Labor Statistics' press release on CPI-U, which represents the spending habits of urban consumers. The base year for the index is set between 1982 and 1984, with each category of expenditure assigned a weight based on the average consumer's spending. The speaker breaks down these weights, highlighting that approximately 15% of spending is on food and beverages, with further subdivisions into categories like cereals, meats, dairy, and fruits and vegetables. Housing accounts for 41% of the basket, followed by transportation, medical care, and other categories such as apparel, recreation, and education. The speaker also discusses how these weights and the CPI are adjusted over time to reflect changes in consumer habits, market emergence of new goods and services, and price fluctuations. The video script concludes with a look at the price indices for each category in November and December 2011, and the year-over-year and month-over-month changes, emphasizing the importance of these indices in measuring inflation and economic health.

05:01
📈 Comparative Analysis of CPI Expenditure Categories Over Time

In the second paragraph, the speaker continues the discussion on the CPI by providing a comparative analysis of how different expenditure categories have changed in price relative to the base years of 1982-1984. They note that while some items like furniture and motor vehicles have not seen significant price increases, others such as medical care have become substantially more expensive, being four times as costly. The speaker also points out that certain categories, like video and audio, information processing, and communication, have become cheaper over time. They highlight the significant increase in the price of tobacco and smoking products due to increased taxation and regulatory measures. The paragraph concludes with an overview of the general price trends, showing a mix of price increases and decreases across various categories, and touches on the importance of understanding these changes for economic analysis and policy-making.

Mindmap
Keywords
💡Consumer Price Index (CPI)
The Consumer Price Index, commonly referred to as CPI, is a measure that tracks the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. It is a key economic indicator used to assess inflation. In the video, the CPI is explored to understand how it represents the basket of goods that an average urban consumer might purchase, with different categories weighted according to their share of expenditure.
💡Basket of Goods
The term 'basket of goods' refers to a collection of consumer goods and services that are used to calculate the CPI. It is designed to be representative of what an average consumer might buy. In the video, the script discusses the composition of this basket, including the various categories such as food and beverages, housing, and transportation, and how the weights of these categories reflect the spending habits of urban consumers.
💡Base Year
A base year is a reference point used in statistical analysis, particularly in calculating indices like the CPI. It is the year to which all other years are compared to measure changes. In the video, the base year is mentioned as being an average between 1982 and 1984, with an index value set to 100, providing a benchmark for measuring price changes over time.
💡Expenditure Category
Expenditure categories are classifications of spending used in economic analysis, such as in the CPI. They represent different areas where consumers spend their money, such as housing, food, or transportation. The script details the percentage of the basket of goods allocated to various expenditure categories, illustrating the relative importance of each category in the average consumer's spending.
💡Weighting
Weighting in the context of the CPI refers to the relative importance of each expenditure category in the overall index. It is determined by the proportion of consumer spending on each category. The video script explains how different categories like food, housing, and apparel are weighted, showing how much of the average consumer's budget is allocated to each.
💡Urban Consumers
Urban consumers are residents of cities who are the focus of the CPI-U, which stands for the Consumer Price Index for All Urban Consumers. The video emphasizes that when people refer to the CPI, they are typically referring to the CPI-U, as it covers the majority of consumers who live in urban areas.
💡Price Index
A price index is a measure that compares the price of a good or service in the present time to its price in the past, normalized to a base value. In the video, the script discusses the price indices for various categories within the basket of goods, showing how prices have changed relative to the base year.
💡Inflation
Inflation refers to the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. The CPI is a key tool for measuring inflation, as it reflects changes in the cost of living. The video uses the CPI to demonstrate how prices have increased over time for different categories of goods and services.
💡Seasonally Adjusted Changes
Seasonally adjusted changes are statistical adjustments made to data to remove the effects of regular and predictable seasonal fluctuations. In the context of the CPI, seasonally adjusted changes help to provide a clearer picture of underlying economic trends by accounting for predictable price changes due to seasonal factors. The video mentions these adjustments in relation to the CPI data presented.
💡Quality Adjustments
Quality adjustments are made to account for changes in the quality of goods and services over time. They ensure that price changes are not mistakenly attributed to changes in quality. For example, the video script mentions that the price of new and used motor vehicles may not have changed much when adjusted for quality, meaning that vehicles are better but not necessarily more expensive in terms of price.
Highlights

The video explores the basket of goods for the Consumer Price Index (CPI).

The table is sourced from a Bureau of Labor Statistics press release.

CPI-U, the CPI for urban consumers, is the focus as it represents most consumers.

The base year for CPI is set between 1982 and 1984, with a value of 100.

Urban consumers spend approximately 15% on food and beverages.

Food at home makes up around 7%-8% of the consumer spending.

Expenditure on fruits and vegetables is comparable to that on alcohol.

Meats, poultry, and fish constitute a larger spending portion than some other categories.

Housing accounts for 41% of the basket of goods, including utilities and fuels.

Furniture expenditure is around 4%-4.4% of the consumer spending.

Apparel makes up 3.6% of the spending in the basket of goods.

Transportation and medical care each account for significant portions of spending.

Tobacco and smoking products expenditure is just under 1% on average.

The weightings of the basket of goods are subject to change due to various factors.

Price indices for each category are provided for November and December 2011.

The year-over-year change in prices is significantly larger than month-over-month.

Comparing the base year of 1967 versus 1982-1984 shows a stark difference in price indices.

Some categories like furniture and motor vehicles have not seen drastic price increases.

Medical care has become four times as expensive since the early '80s.

Technology items like computers and communication services have become cheaper.

Tobacco and smoking products have seen a dramatic increase in price.

The video concludes with a discussion on the importance of understanding CPI changes.

Transcripts

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Related Tags
Consumer Price IndexUrban ConsumersBasket of GoodsPrice IndexBureau of Labor StatisticsExpenditure CategoriesHousingTransportationMedical CareInflation TrendsEconomic AnalysisMarket Dynamics