By Suzanne Hazlett, MBA, CIMA®, CFP®
The May 2022 Consumer Price Index (CPI) report was higher than expected, with the overall CPI increasing to 8.6% from one year earlier. The CPI measures the average change over time in the prices for a representative basket of consumer goods and services. The CPI increases or decreases based on average price movements inside the market basket.
Measured Items – Expenditure items are classified in the CPI into more than 200 categories and are arranged into eight major groups.
Food and beverages (breakfast cereal, milk, coffee, chicken, wine, full-service meals, snacks)
Housing (rent of primary residence, owners’ equivalent rent, utilities, bedroom furniture)
Apparel (men’’ shirts and sweaters, women’s dresses, baby clothes, shoes, jewelry)
Transportation (new vehicles, airline fares, gasoline, motor vehicle insurance)
Medical care (prescription drugs, medical equipment and supplies, physicians’ services, eyeglasses and eye care, hospital services)
Recreation (televisions, toys, pets and pet products, sports equipment, park, and museum admissions)
Education and communication (college tuition, postage, telephone services, computer software, and accessories)
Other goods and services (tobacco and smoking products, haircuts and other personal services, funeral expenses)
How is the CPI used?
As an economic indicator – As the most widely used measure of retail inflation, the CPI is a significant indicator of the effectiveness of government economic policy. The federal government uses the movement of the CPI to help formulate and monitor the effects of fiscal and monetary policies.
As a tool for adjusting income payments – Social Security benefits and military and Federal Civil Service pension payments are indexed to the CPI. Many collective bargaining agreements tie automatic wage increases to the CPI in the private sector. Some private firms and individuals use the index to keep rents, alimony, and child support payments in line with changing prices.
Determining tax bracket thresholds – Federal (and some state) income tax bracket thresholds and other parameters are adjusted to the CPI.
A healthy economy typically generates inflation in the range of about 2%, reflecting increased economic activity stemming from a growing population and productivity gains. The current CPI level of 8.6% represents a 40-year high.
Suzanne Hazlett, MBA, CIMA®, CFP® HAZLETT WEALTH MANAGEMENT, LLC is independent of Raymond James and is not a registered broker/dealer. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. All investing involves risk, including the possible loss of principal amount invested. No investing strategy, including rebalancing or dollar cost averaging, can guarantee your objectives will be met. 675 Sun Valley Road Ketchum, Idaho, 208.726.0605. HazlettWealthManagement.com