Inflationary Pressures on Cost and Pricing Strategies. Paper Example

The following paper will provide answers to the given question that entails Consumer Price Index (CPI). According to Farnham (2014), CPI involves a measure that entails combining prices paid by customers for a market basket of goods or services that is fixed for a given time that is relative to the combination to the cost of similar basket of goods or services in a certain base time.

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CPI: Inflation Picks Up

Percentage change in the CPI up until August accounted for by changes in the prices of food, clothing and medical care.

• To calculate percentage change = (period 2/ period 1) - 1.0 *100
• Therefore, Changes in prices of food = (4.6/3.8) - 1.0 *100 = 21.05%
• Changes in prices of clothing = (4.2/3.8) - 1.0 * 100 = 10.53%
• Changes in prices of medical care = (3.2/3.8) -1.0 * 100 = -15.79%

CPI is calculated based on the core basket of goods and services utilized by each person to determine how much an average individual spends.

Given the changes in food, clothing, and medical care, by what percentage did the prices of the other items in the CPI basket change?

Based on the changes in food, clothing and medical care, the price of other items will be there total subtracted a 100. The overall of the three products is 15.79%; therefore, the percentage change of other items in the CPI basket change is 84.21%.

Why did the prices of the other items change?

Due to a lot of reliant that is available in the market, the prices of other items are going to change. The case investigated by Yasunori Yoshizaki and Shigeyuki Haomori offers a scenario to investigate how oil price changes in the economy affect the entire economy. According to Yoshizaki & Haomori (2014), changes in oil prices have a direct impact on the cost of gasoline that will result to impact on each aspect of the economy. For instance, an increase in the price of gas will have a direct impact on the cost of transportation for products to the market. The impact will raise indirectly the cost of each item sold in the stores that are aimed to cover the rising expenses on transportation. Subsequently, the entire increase in cost at the end is passed to the final consumer.

What is the probable impact of the change of other items in the CPI basket?

The probable impact that will arise if the change of other items in the entire CPI basket will be significant to the economy and will have an effect on the rate of inflation. According to Csipak and Zuccaro (2014), producer price index does not have a significant impact on the rate of inflation during expansionary periods, but supply-side effects will arise on inflation during the recession period. Thus, the consumer price index can be considered as an appropriate tool for targeting the inflation rate. Therefore, an argument can arise that substitution with an inferior product or offer discount on prices will introduce regular and stable impact over time. This ensures that to measure inflation is not impacted significantly by CPI. Subsequently, if the CPI is declining, it shows that there is deflation reflecting a steady drop in the prices of goods and services. However, CPI does not represent the true index for cost of living.

References

Csipak, J. J., & Zuccaro, C. (2014). The CPI market basket: A review of economic and marketing validity issues. Journal of Economics and Economic Education Research, 15(3), 69. https://pdfs.semanticscholar.org/706c/8540d818e88cfaffe440ad45e81a34538786.pdf

Farnham, P. G. (2015). Economics for Managers, Global Edition. Harlow, United Kingdom: Pearson. https://bookshelf.vitalsource.com/#/books/9780133252293/cfi/345!/4/4@0.00:0.531

Yoshizaki, Y., & Haomori, S. (2014). The effects of oil price shocks on expenditure category CPI. Applied Economics, 46(14), 1652-1664. DOI: 10.1080/00036846.2014.881977.