Definition of CPI and CPIX
The Consumer Price Index (CPI) is a statistical measure that calculates the average change over time in the prices of a basket of goods and services consumed by households. It is used as a measure of inflation and a gauge of the purchasing power of a currency.
The basket of goods and services used to calculate the CPI is selected based on the spending patterns of a typical urban household and is regularly updated to reflect changes in consumption patterns. The prices of the items in the basket are collected periodically from various sources and the weighted average of these prices is used to calculate the CPI.
The CPI is calculated by taking the current prices of a fixed basket of goods and services and dividing it by the prices of the same basket in a base year, adjusted for inflation. The result is expressed as an index number, with the base year equal to 100. An increase in the index number indicates an increase in the overall price level and therefore a decrease in the purchasing power of a currency.
CPIX (Consumer Price Index excluding mortgage interest)
Consumer Price Index excluding mortgage interest (CPIX) is a variation of the Consumer Price Index (CPI) that is used to measure inflation in South Africa. It is calculated by excluding the changes in mortgage interest rates from the basket of goods and services used to calculate the CPI.
CPIX is used as an alternative measure of inflation to the regular CPI, as it provides a clearer picture of the underlying inflation trend by excluding the volatile component of mortgage interest rates. This makes it a useful tool for monetary policy decisions as well as for analyzing the performance of the economy.
Like the CPI, the CPIX is also expressed as an index number, with the base year equal to 100. An increase in the index number indicates an increase in the overall price level, excluding mortgage interest rates, and therefore a decrease in the purchasing power of a currency.
Comparison of CPI and CPIX
The Consumer Price Index (CPI) and Consumer Price Index excluding mortgage interest (CPIX) are similar in that both are measures of inflation used to track changes in the overall price level of goods and services consumed by households. However, there are some key differences between the two measures.
One of the main differences between CPI and CPIX is that the latter excludes the changes in mortgage interest rates from its calculation. This makes CPIX a more accurate reflection of the underlying inflation trend, as it eliminates the volatile component of mortgage interest rates. This is particularly relevant in countries like South Africa, where changes in mortgage interest rates can have a significant impact on the overall inflation rate.
Another difference between the two measures is that the basket of goods and services used to calculate CPIX may be slightly different from the basket used to calculate the regular CPI. For example, in South Africa, the CPIX basket may exclude items related to housing, such as mortgage interest payments.
While both CPI and CPIX are measures of inflation, CPIX provides a clearer picture of the underlying inflation trend by excluding the impact of changes in mortgage interest rates. As a result, CPIX may be more useful for analyzing the performance of the economy and for monetary policy decisions in countries like South Africa.
Conclusion
the Consumer Price Index (CPI) and Consumer Price Index excluding mortgage interest (CPIX) are important tools for measuring inflation and analyzing the performance of an economy. The CPI provides a broad measure of changes in the overall price level of goods and services consumed by households, while CPIX provides a more focused view of the underlying inflation trend by excluding the impact of mortgage interest rates.
Both measures are expressed as index numbers, with the base year equal to 100, and an increase in the index number indicates an increase in the overall price level and a decrease in the purchasing power of a currency.
In countries like South Africa, where changes in mortgage interest rates can have a significant impact on the overall inflation rate, CPIX may be a more relevant and useful tool for analyzing the performance of the economy and for monetary policy decisions.
It is important to understand the differences between CPI and CPIX in order to accurately interpret and analyze inflation trends and their impact on the economy.
Reference Link
Consumer Price Index (CPI) and Consumer Price Index for all urban consumers (CPIX) are measures of inflation used by economists to determine changes in the prices of goods and services.
You can find more information about these indices from the following sources:
- Bureau of Labor Statistics (BLS), United States Department of Labor: https://www.bls.gov/cpi/
- South African Reserve Bank: https://www.reservebank.co.za/monetary-policy/inflation-targeting/consumer-price-index-cpi
- Statistics South Africa: https://www.statssa.gov.za/?page_id=1854&PPN=P0141&SCH=7234
