Economics and CPI-Consumer Price Index Question?

Question

I'm working on an assignment for my online college course-MacroEconomics and I don't really understand CPI.

The higher the CPI in a city, the worse it is to go there? Correct? Because that means the prices there are much higher for goods and services. Am I correct?

Answer 1

The CPI is a calculation based on a base year. I don't know in the case of the US, but in the country I come from, the base year is 1990. Thus, a CPI of 120 means that, since 1990, the prices have increased 20%. If you want to see the change in the CPI for a time-frame other than from the base year to the current year, you would need to calculate it. Say, the CPI in 2000 was 110 and in 2006 it was 120, what is the change?
(120-110)/110 +100 = 9.1%

Bear that in mind when you make comparisons.

Answer 2

Generally speaking, the Consumer Price Index lets us know how much a "basket of goods" would cost. This basket of goods contains a mix of goods/services from all sectors of the economy (consumer staples, technology, health care, etc.) In other words, the higher the CPI is, the more expensive that goods and services tend to be in that specific country.

Your assertion that a higher CPI means that it's "bad" to go there is only half correct. A higher CPI usually means that that country's standard of living is higher, because its people can afford the prices of its goods and services. This is generally a good thing for that area's citizens. However, if you are visiting from an area that has a lower CPI, chances are that you will not view this as a positive.

Hope this helps.

Answer 3

Uh.. yep.

CPI is the cost of an expected breadbasket (common necessities) for a population or region. If a city has a relatively high CPI, then its stuff is more expensive.

Answer 4

THIS IS THE INCREASE IN THE PRICE OF CONSUMABLE GOODS AND SERVICES AS RESULT OF THE FALL IN THE PURCHASING POWER OF A CURRENCY.WHICH MEANS MORE MONEY IS SPENT FOR A FEWER GOODS BECAUSE THE CURRENCY HAS LOST SOME OF HIS VALUE OWING TO SOME ECONOMY FACTORS.