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Historical CPI data can be used to understand inflation trends, estimate the cost of living, make financial decisions, and gauge the effectiveness of government policies. It can also help economists draw conclusions about the state of the economy and the timing of business cycles.
Traditionally, a consumer price index (CPI) is used to illustrate the prices consumers pay for goods and services. When viewing historical CPI information, it becomes increasingly clear whether these prices are rising or falling. In general, the information is publicly available and can be manipulated or used to compare current costs with prices charged in the past. CPI data also indicates whether inflation is present in a regional economy, and financial experts can use the information to gauge the start and end of formal cycles.
Historical CPI data is helpful in determining how rates of inflation, which represent the purchasing power of a regional currency, have trended over a certain period of time. If a professional or individual seeks to understand how inflation has risen or fallen in the past, they can refer to tables illustrating past consumer price data to understand a regional or international economy. In doing so, a person can learn some trends or patterns that may be prone to repetition; which could lead someone to make financial, life or investment decisions.
In reviewing a change in the current rate of consumer prices relative to the historic CPI, a person can learn whether consumers are paying more or less on average for goods and services. Based on this information, he or she can estimate the cost of living and 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 variety of purposes. They can use it to draw conclusions and consolidate previous estimates about the state of the economy. For example, economic data released by federal agencies is often based on preliminary information. Often, these findings are revised once business cycles become more apparent and clear. Economists may turn to revised information on consumer prices in order to make a more formal decision about the timing of various business cycles, such as economic downturns or expansions.
Government policy makers could use historical CPI data to gauge whether or not economic policy is working. For example, monetary policy makers can adjust certain interest rates in an effort to keep an economy from slowing down or growing too quickly. If past CPI indicates that the economy is indeed reporting extreme characteristics, government officials may be calling for changes in how policy makers respond.
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