Traditionally, a consumer price index (CPI) is used to illustrate the prices that consumers are charged for goods and services. In viewing historical CPI information, it becomes increasingly clear whether those prices are trending higher or lower. Generally, the information is available to the public and can be manipulated, or used, to compare current costs to prices that were charged in the past. CPI data also represents whether inflation is present in a regional economy and finance experts can use the information to assess when formal business cycles began and ended.
Historical CPI data is useful to determine the way inflation rates, which represent the buying power of a regional currency, have been trending over a period of time. If a professional or any individual seeks to understand the way that inflation has risen or dropped in the past, he or she can refer to tables that illustrate past consumer price data to understand a regional or international economy. In doing so, a person can learn some trends or patterns that could be prone to repetition; which could lead someone to making financial, living or investment decisions.
In reviewing a change in the current rate of consumer prices versus historical CPI, a person can learn whether consumers are, on average, paying more or less for goods and services. Based on this information, he or she can assess the cost of living and may decide to relocate. In doing so, an individual is using historical CPI to make decisions about where to reside.
Economists can use historical CPI information for a host of purposes. They can use it to draw conclusions and solidify previous estimations about the state of the economy. For instance, economic data that is released by federal agencies is often based on preliminary information. Often, those results are revised once business cycles become more apparent and clear. Economists might turn to revised consumer price information in order to make a more official determination about the timing of various business cycles, such as economic recessions or expansions.
Government policymakers might use historical CPI data to assess whether or not economic policy is working. For instance, monetary policymakers can adjust certain interest rates in an attempt to prevent an economy from slowing to dramatically or growing too fast. If past CPI indicates that the economy is, in fact, signaling extreme characteristics, government officials might call for changes to the way that monetary policymakers are responding.
