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Consumer Price Index

What are the strengths of the CPI? What are the characteristics of these strengths?
Same for weaknesses?
If the CPI is imperfect why do we use it?

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Consumer Price Index (CPI) is used to measure the changes in the prices of a range of consumer products. It is calculated in urban areas and provides a fairly good look at how much inflation has occurred in the country.
A CPI can utilize either a base year or a chained system. Using a base year system, the CPI takes a breakdown of spending areas from a specific year and weights each accordingly for subsequent years. As an example, if in 1990 the breakdown of spending was 15% food, 10% recreation, 25% housing, 5% apparel, 15% transportation, 10% medical care, 5% education and 15% other, then these same weightings would be used in all ...

Solution Summary

This solution is comprised of a detailed explanation to answer what are the strengths of the CPI, what are the characteristics of these strengths and weaknesses, and if the CPI is imperfect why do we use it.

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