Economic Wisdom to Apply in Your Twenties

Chapter 17

Chapter 2 Section 5 How to beat the CPI
Perhaps it was not until the last few years that we gradually realized a term called "CPI" after a piece of "You can't run against Liu Xiang, but you must run past CPI" became a hot topic online and offline.

Now CPI has become a familiar economic vocabulary. Newspapers, the Internet, and even old ladies who don’t even know the English alphabet are talking about CPI.For young people in their twenties, in the final analysis, the concern about CPI is the price change of daily necessities, such as the price change of food, the price change of daily necessities, and the price change of petroleum and clothing.

So, what exactly is the CPI?Does it faithfully reflect the rising costs of our daily lives?

Let's first understand the CPI.The so-called CPI, namely Consumer Price Index (Consumer Price Index), is an indicator of price changes that reflects the prices of products and services related to residents' lives. It is usually used as an important indicator to measure the level of inflation.

Generally speaking, when the CPI increases by more than 3%, economists believe that inflation has occurred; and when the CPI increases by more than 5%, it is considered that the economy has serious inflation.If the consumer price index rises too much, it indicates that inflation has become an unstable factor in the economy, and the central bank will have the risk of tightening monetary policy and fiscal policy, resulting in an uncertain economic outlook.

We already know that inflation is directly related to our daily life.The most important indicator to observe the level of inflation is CPI.

How is CPI calculated?Its entire calculation process is very complicated, we don't need to know, what we need to know is that the average price of buying things is usually the CPI. The rise in CPI means that the daily expenses we bear are also rising.For example, in 2007, my country's CPI rose to 4.8%, that is to say, our daily expenses increased by 4.8%.In other words, rising CPI means your cost of living goes up, and the value of your money goes down accordingly.A banknote worth 100 yuan a year ago can only buy goods and services worth 2.5 yuan when the CPI rises by 97.5%.

my country's CPI includes eight categories of commodities: the first category is food, the second category is tobacco, alcohol and its supplies, the third category is clothing, the fourth category is household equipment supplies and maintenance services, and the fifth category is medical care and personal products. , the sixth category is transportation and communication, the seventh category is entertainment, education, cultural goods and services, and the eighth category is residence.All categories related to household consumption are included in these eight categories.In the CPI price system, the weight of food accounts for 32.74%.

In the past few years, food represented by meat, including meat, grain, soybean products, edible oil, vegetables, etc., experienced a significant increase around 2008. In 2007, China's price increase reached its highest point in 10 years, mainly due to the excessive increase in food prices. In the first five months of 2008, the CPI surged all the way, and in February it rose by 5% year-on-year, breaking through a record high.From the sub-item data, food prices rose by 2% in the month, becoming the main factor for the rise in consumer prices.

Generally speaking, the high trend of my country's CPI in recent years is mainly affected by the rise of food prices.However, as the most important component of CPI, food price is easy to be underestimated.Assuming that the price of pork rises by 26%, we will have to pay 26% more for each meal of meat, that is to say, if you eat three meals a day, whether it is breakfast, lunch or dinner, you will pay more for each meal of meat 26% of the money.

However, the 26% increase in food expenses is not directly reflected in the CPI, why?Because CPI is the average of all consumer goods we use, it represents the growth of all consumer goods, including electrical appliances, housing, etc.However, if the prices of TV sets and refrigerators have risen, we don’t have to buy them; if housing prices are ridiculously high, we can also temporarily give up our plans to buy houses.While food prices have gone up, we have no choice.

Therefore, our real daily living expenses are not fully reflected by the CPI.In daily life, the economic indicators we need to pay attention to cannot be seen as a whole through the CPI index, but individually, to see how much the price of meat has risen, how much the price of rice has risen, and how much the price of edible oil has risen.Therefore, although CPI is very important for us to understand economic life, we should not interpret CPI with too much charge and high expectations. Rational young people know how to use CPI as a basis for understanding the degree of inflation, as a basis for understanding and forecasting. An important indicator of the country's macroeconomics.

Wisdom Pieces: CPI Trends in China Over the Years
Note: Knowing the trend of CPI can let you grasp the purchasing power of the currency in your hand

(End of this chapter)