Running head: CONSUMER PRICE INDEX AND INFLATION 1

Consumer Price Index and Inflation

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Consumer Price Index and Inflation

Inflation refers to rise in products prices especially those in consumer basket. According

to Federal Reserve of St Louis website, coffee’s Consumer Price Index has been changing

overtime. To be precise, since the year 1995 to 2015. The fives will under focus to help in

computing inflation.

𝐼𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛 = [{𝐶𝑃𝐼1 − 𝐶𝑃𝐼0 }/𝐶𝑃𝐼0 ] ∗ 100

The formulae above aid in calculation of inflation

Where CPI0 represent previous year

CPI1 represents the following year.

The inflation rate has been increasing since the 1995 all through to 2010. However,

between the year 2010 and 2015 the inflation rate declined a little though it was still high from

the economic point of view. It therefore clearly indicates that coffee prices have been rising since

1995 to 2010 but fell a little between 2010 and 2015 due to a negative rise in inflation rate from

21.73% to 12.15%. High inflation rates in any economy poses very serious and adverse

economic impacts to the households and nation’s economy at large. It is a desire for every nation

to try and minimize inflation level in its economy to improve the living standards of citizens,

raise the purchasing power of its currency and make sure it has a positive balance of trade and

payments in its GDP. Maintaining low inflation levels helps in ensuring that the country’s Real

Gross Domestic Product increases positively. The latter makes the country competitive in the

market. The rise in inflation rate over the five years may have been geared by reduced coffee

supply in US, or high demand of the product, high cost of processing, political instability and

high level of taxes. The rising level of inflation cause the cost of living to be much expensive,

cost of making investment rises and many people end up unemployed due to low employment
CONSUMER PRICE INDEX AND INFLATION 3

opportunities, also the interest rates rises that causes dissaving among the employed personnel. It

is there important to manage inflation levels at all costs. Additionally, high inflation levels

causes overspending resulting to households operating on negative budgets resulting on heavy

debts to finance the basic needs.

Over the last five years my income has failed to match with the inflation rate because the

human resource manager fails to match the level of income increment with the rising level of

inflation rate over time. The situation has subjected my income under stress since products are

much expensive than before. The evidence above shows how inflation may impacts ones income.

The value of a single dollar of income loses value as income levels rises. Very high level of

inflation reduces the amount a household can buy in a consumer basket. Therefore, it makes a lot

of sense if the government can try and reduce the level of inflation either through monetary on

fiscal policies. Inflation affected my buying power because it meant I had to more for the same

goods and services. Also an asset bubble affected my income and in overall my family especially

when it was about to burst causing me to live at a lower standard than before. It made me spend

me immediately rather than later and therefore I was not able to save for my family’s education

and luxurious lifestyle like before. It also affected by retirement planning because I had to make

higher contributions toward the scheme ("How Does Inflation Impact My Life?” 2017).

The CPI is a program that is ran by the US Department of Labor and it produces monthly

data on dynamics in product prices over time for a representative consumer basket of products.

CPI is very important to human resource manager because it serves as a necessary tool in

determining by how much the employees’ should be revised. The greater the changes in the CPI

between successive years, the higher the salary increment. The revision helps to ensure that

employees are able to keep up with the rising products’ prices. Compensation professionals uses
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CPI to help guide merit increase budgets and determine the cost of living increases. The indexes

are also used in the implementation of adjustments to formal pay grade structures.
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References

How Does Inflation Impact My Life?. (2017). The Balance. Retrieved 24 February 2017, from

https://www.thebalance.com/inflation-impact-on-economy-3306102

http://www.michamber.com/how-hr-professionals-use-consumer-price-index-cpi

https://fred.stlouisfed.org/series/CUUR0000SEFP01

https://www.thebalance.com/inflation-impact-on-economy-3306102