INVESTOR SERIES
The consensus view is that the June CPI should rise +8.5% from year ago, about 1.0% on monthly basis, which would make its largest gain since 1981.
FACT: the most well-known indicator of inflation is the Consumer Price Index (CPI). It is the index most closely followed by policymakers, financial markets, businesses, and consumers.
Effects on the consumer price index as it continues to rise
When there is an upward change in the CPI, this means there has been an increase in the average change in prices over time. This eventually leads to adjustments in the cost of living and income. This process is referred to as indexation.
Formula
Consumer Price Index = (Value of Market Basket in the Given Year / Value of Market Basket in the Base Year) * 100
Example: Consumer Price Index = ($53.50 / $47.25) * 100. Consumer Price Index = 113.23
Effect on wages
Businesses often use indexation measures to match an employee’s salary increases to the inflation rate, meaning that an increase in the consumer price level over a period of time will lead to an increase in salary. This type of indexation is called a cost of living increase (COLA).
