BUSINESS ENVIRONMENT REPORT B104
Consumer price index
April 2020
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Consumer price index
Key Statistics
April 2020
Estimated value in 2020: 257.9 index points
2015-2020 Compound Growth: 1.70%
Forecast value in 2025: 284.7 index points
2020-2025 Compound Growth: 2.00%
Current Performance Movements in the CPI influence economic decisions in several circumstances. Firstly, the Federal Reserve
uses the Personal Consumption Expenditure Price Index, a similar measure of inflation, to guide their
monetary policy implementation. Inflation above a certain rate has several negative effects on economic
growth, which monetary policy tries to avoid. In a growing economy, positive inflation is a result of this
growth and deflation typically occurs during a recessionary period. Consequently, a low and steady level of
inflation is the standard target. Governments also look at movements in the CPI when making fiscal policy
decisions, as expansionary fiscal policy increases aggregate demand but creates inflationary pressures,
which puts pressure on monetary policy. Furthermore, movements in the CPI are used to influence wage
negotiations for workers and unions.
In 2007 and 2008 the CPI grew 2.9% and 3.8%, respectively. In 2008, inflation grew strongly over the first
four months of the year, but surged between May and July, driven by high energy and food prices.
However, as the recession's grip began to spread around the globe, there was a rapid decline in overall
commodity prices in the final quarter of the year. The fall in commodity prices continued through 2009,
causing the CPI to record its first annual decline in over three decades. The dip was led by transportation
prices, due to a 28.0% fall in motor fuel prices, caused by the swift contraction in world oil demand.
Additionally, airline prices and other intercity transportation costs slipped by 9.0% and 6.0%, respectively,
due to softer demand for domestic and international travel.
Over the years immediately following the recession, CPI rose 1.6% in 2010, 3.2% in 2011 and 2.1% in 2012.
Since then, fears of an extended period of deflation have proved to be largely unfounded, as the economy
began its gradual recovery. In 2015, the CPI grew a slight 0.1%, as the large monetary expansion efforts
struggled to filter to consumers as commercial banks did not extend loans. Moreover, sharp declines in
the price of crude oil and other key commodities limited price growth in 2015 and 2016. Nevertheless, the
CPI grew 1.3% in 2016. According to the BLS, from January 2016 to January 2017, there was a 3.6%
increase in medical expenses that was countered by a 0.2% decline in total food prices. Still, the primary
factor driving growth was a 10.8% increase in energy prices. More specifically, motor fuel costs increased
20.2%. In 2020, the CPI is expected to increase just 0.9%, as the demand loss stemming from the
COVID-19 outbreak and collapse of energy prices have weighed on prices significantly.
The Consumer Price Index (CPI) is used as a measure of inflation from year to year. This report focuses on
the headline inflation rate for all urban consumers, which is measured using the changes in price for a
predefined "basket of goods and services". The basket includes food, beverages, housing, energy, clothing,
transportation, medical care, recreation, education, communication and other expenses, such as haircuts,
funeral expenses and tobacco. The index is anchored at a value of 100 between 1982 and 1984. Data for
this report is sourced from the Bureau of Labor Statistics (BLS).
Outlook
Consumer spending, the factor driving up demand for goods and services that pushes price levels up, is
expected to rebound following the worst year of consumption growth since the Great Depression. As
energy demand catches up to the recent oversupply, energy price increases are expected to place upward
pressure on the overall CPI. However, employment and economic growth are expected to moderate after
an inital recovery period in 2021 and 2022, limiting price level appreciation. Barring any external shocks
and assuming consistent and slow-moving monetary policy, the CPI is expected to increase at an
annualized rate of 2.0% over the five years to 2025.
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Consumer price index
April 2020
Data Volatility
Year
Index
% Change
Year
Index
% Change
1980
82.41
N/A
2004
188.88
4.9
1981
90.93
8.5
2005
195.29
6.4
1982
96.50
5.6
2006
201.59
6.3
1983
99.60
3.1
2007
207.34
5.8
1984
103.88
4.3
2008
215.30
8.0
1985
107.57
3.7
2009
214.54
-0.8
1986
109.61
2.0
2010
218.06
3.5
1987
113.63
4.0
2011
224.94
6.9
1988
118.26
4.6
2012
229.59
4.7
1989
123.97
5.7
2013
232.96
3.4
1990
130.66
6.7
2014
236.74
3.8
1991
136.19
5.5
2015
237.02
0.3
1992
140.32
4.1
2016
240.01
3.0
1993
144.46
4.1
2017
245.12
5.1
1994
148.23
3.8
2018
251.11
6.0
1995
152.38
4.2
2019
255.66
4.6
1996
156.85
4.5
2020
257.87
2.2
1997
160.52
3.7
2021
262.84
5.0
1998
163.01
2.5
2022
268.89
6.0
1999
166.58
3.6
2023
274.36
5.5
2000
172.20
5.6
2024
279.59
5.2
2001
177.07
4.9
2025
284.72
5.1
2002
179.88
2.8
2026
289.86
5.1
2003
183.96
4.1
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