The consumer price index (CPI) gives us a crucial part of the picture when it comes to affordability, inflation, and the cost of living. Are we paying more for everyday items? Why the consumer price index matters In summary, by studying the relationship between the CPI, LCI, and WPI, we can see which groups face additional financial pressure due to price changes in the economy, and how this impacts their cost of living. That way, we can see if households have the ability to keep pace with inflation. Economists then keep a good idea on how wage growth (WPIs) compares with the CPI. It’s important to keep in mind that price jumps in consumer goods won’t hurt people’s finances so long as wages go up, too. Therefore, the LCI will show different expenditure increases for pensioners and young workers as a result of the same CPI increase. However, this increase will hurt a pensioner with a fixed income a lot more than a young worker with a disposable income. This will drive up the corresponding CPI, since there has been a positive change in value. WPIs measure the changing price of labour, or fluctuating household incomes, in a few different standardised sectors.įor example, let’s say the price of food goes up.LCIs measure the impact of changing values on different kinds of households – in other words, how much money a household needs to spend to maintain their standard of living.CPIs measure the change in value of consumer goods and services (like food or healthcare).“Index” to an economist means “change in value”. These statistics all sound similar, but they have different and important meanings. The Australian government evaluates the cost of living through a few numbers, mainly the Consumer Price Index (CPI), Living Cost Indexes (LCIs) and the Wage Price Index (WPI). How do we measure the cost of living? The consumer price index explained Therefore, when it comes to saving money and maintaining a good standard of living, basic costs are a crucial part of the equation. If someone faces a higher cost of living, it follows that their standard of living – and quality of life – might also be impacted. However, cost of living is still a very important factor in understanding how we live. It can even give us an idea of someone’s “quality of life”, or subjective happiness. Standard of living differs widely along socio-cultural lines, too, such as race, gender, sexuality, ability, and age. Access to affordable and quality housing, healthcare, and education.īecause of this, standard of living is usually a far more comprehensive measure of someone’s circumstances than cost of living.
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