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CPI Analysis

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If the CPI was 110 last year and is 121 this year, what is this year's rate of inflation? In contrast, suppose that the CPI was 110 last year and is 108 this year. What is this year's rate of inflation? What term do economists use to describe this second outcome?

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CPI Analysis

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Time series analysis of Consumer Price Index

to interpret statistics based on time series data presented as graphs of a product, whose average prices are given by the month over a sequence of years

I. How to Get Your Graphs and Data

(1) Locate the following website which records time series data: http://www.bls.gov/data/. This is the federal government's source, Bureau of Labor Statistics
(2) Scroll down to Prices and Living Conditions, under which you'll see CPI - Average Price Data.
(3) Select CPI (Consumer Price Index) Average Price Data by clicking on the button under Most Requested Statistics.
(4) You'll see a list of 18 products. Select the Navel Oranges Click on the Retrieve Data button. Notice that a table appears with monthly data for all years within the range of prices that have been tracked. To be sure that you have the complete set of data, locate Change Output Options at the upper left side of the screen. Then, use the pull-down menu to find the first and last years for which prices of your product have been tracked. [Some products begin in 1980 and are tracked through 1997; others, from 1980 through 2005. Still other products have another range of years. Be sure to set up the complete range for your product.]

(5) Click on More Formatting Options at the top of the screen. When the next window appears, select the following: all years, all time periods, include graphs, and Retrieve Data. Print the time-series graph and its accompanying table. Consider this the master graph over the range of years for your product. Copy and paste the data table into an MS Word document so that you can save and include it in your report. Also, right-click on your graph and in the drop-down menu, select SAVE PICTURE AS. Save the picture so that you can insert the graph into an MS Word document and include in your report.

(6) Go back to the first window and systematically retrieve a time-series graph for each month. Do the following: select Year Range; select one time period, choose January; check Include Graphs, and Retrieve Data. This procedure will bring up the city average prices for your product in January during all the years for which tracking data is available. Print the January time-series graph and its accompanying table. Repeat this procedure for February through December. Remember to copy and paste your data tables and save the graphs by right-clicking and choosing SAVE PICTURE AS.

(7) When you're finished, you should have 13 graphs, each with its accompanying table of data.

II. How to Analyze Your Data

(1) Look for an overall trend of stability versus fluctuation on the master time-series graph. Describe this trend. Use the twelve monthly time-series graphs to help you interpret the master graph. Cite which monthly graphs play a key role toward your understanding of the master graph. Concentrate on the "peaks" and "valleys." See if a certain trend has occurred in a certain month or months that explains the fluctuations in the yearly trend during your tracking period. Consider supply and demand and the effect of a variety of economic occurrences, when you explain trends.

(2) Calculate annual mean prices and their corresponding standard deviations to see how pricing changes from year to year. Include these calculations in your report.

(3) Look up references for your product on the internet and in the printed media. Try to find information on why prices have changed over the tracked years or why the prices have remained almost stable.

[Example: Think in terms of business, particularly about supply and demand. Here's an example: The TI 83 Plus calculator has been "showcased" in mathematics textbooks on algebra, statistics, and calculus. Even special booklets have been published about how to use that calculator. As a result, Staples claimed that this particular calculator, which has sold around $100, was most popular among consumers. This price has held steady for a number of consecutive months. Why? The answer is because there was a demand for that product. Consequently, there was no need for the Texas Instruments Company to lower the price of a "hot selling" item, until an improved version, the TI-84 Plus calculator, became available on the market. Afterwards, Staples reduced the price of the TI-83 Plus calculator. Apply this kind of thinking to your product when you interpret its average prices within each year and throughout its consecutive annual historic record. Of course, you will have to consider an array of economic trends within years and between years.]

(1) Type at least one full page regarding your interpretation of the graphs and tables that accompany your product. Use double spacing. Identify your sources in the body of your report by citations and include a reference list at the back.

(2) Include a Reference list of at least two information sources that support your interpretation of the graphs for your product.

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