MERIC NEWS LETTER

Consumer Price Index 2007

The average cost of a market basket of goods and services in the United States increased by an average of 2.8 percent in 2007 according to the U.S. Bureau of Labor Statistics’ Consumer Price Index (CPI). This commonly used rate of inflation is down from 3.2 percent in 2006. This marks the second consecutive year of inflation decreases in the U.S. after a high of 3.4 percent in 2005. Although prices in the last three months of 2007 rose considerably, moderate inflation during the rest of the year tempered the annual average.

Annual Rate of Inflation 1997 to 2007 Graph

The CPI is based on prices of food, clothing, shelter, fuels, transportation fares, charges for doctors’ and dentists’ services, drugs, and other goods and services that people buy for day-to-day living. Prices are collected in 87 urban areas across the country (including Kansas City and St. Louis) from about 50,000 housing units and approximately 23,000 stores, hospitals and other types of service establishments.

The actual index is expressed as a number derived by comparing the current cost of goods and services to the cost of the same items between 1982-1984. The reference year is given a value equal to 100. Subsequent indices are expressed as a percentage of the base year.

Prices in the Midwest Region (a 12-state region which includes Missouri) increased 2.7 percent in 2007, up from 2.4 percent in 2006. The inflation rates for Missouri’s major metropolitan areas in 2007 were less than the national average. The Kansas City MSA had a 2.3 percent increase in prices over the year, while prices in the St. Louis MSA increased by 2.0 percent. There is no state-level inflation data.

CPI Bar Graph 2006 to 2007

The Consumer Price Index is one of the most widely used measures of inflation and has a variety of purposes. The CPI is used as a deflator for adjusting other economic data series to inflation-free dollars. In addition, the CPI is used to adjust income payments for more than 80 million people, including, but not limited to, workers whose collective bargaining agreements tie wages to the CPI, Social Security beneficiaries, military and Federal Civil Service retirees and food stamp recipients. Changes in the CPI also affect the cost of lunches served in schools around the U.S.

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