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Inflation: How Do We Construct and Choose an Index?
Understanding inflation can be challenging. Consumers may not know how rising prices correspond to the multiple estimates published by government bureaus or why the data vary. According to the Bureau of Labor Statistics' (BLS's) consumer price index (CPI), prices increased 8.3% last April from the year before; according to the Bureau of Economic Analysis's (BEA's) personal consumption expenditures (PCE) price index, they increased 6.3%. What are consumers to make of these indexes—and why do they differ? As we discussed in Part 1 of this series, the CPI and PCE price indexes attempt to measure the average price ... (full story)