How would you describe the trend of CPI from January 2019 to July 2022? Overall, which component contributed most to the CPI? Which component contributed the least?

DISCUSSION ESSAY

Inflation has been running high in recent months. According to the Wall Street Journal (WSJ), “The Labor Department on Wednesday [August 10, 2022] said the consumer-price index, a measure of what consumers pay for goods and services, rose 8.5% in July from the same month a year earlier, down from 9.1% in June. June marked the fastest pace of inflation since November 1981.”

The Bureau of Labor Statistics (BLS) defines the Consumer Price Index (CPI) as “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.” (https://www.bls.gov/cpi/)

Because food and energy prices often change in a very volatile way, BLS also keeps track of the so-called Core CPI which measures the changes in the price of goods and services, excluding food and energy.

The following graph from WSJ shows monthly CPI from January 2019 to July 2022, as well as the contributions from the core CPI, food, and energy.

Question 1. How would you describe the trend of CPI from January 2019 to July 2022? (3 points). (Provide 3 different Analyses to receive full credit **)

Question 2. Overall, which component contributed most to the CPI? Which component contributed the least? (2 points)

Question 3. The CPI dropped sharply in the spring of 2020, almost close to 0% around the late spring – early summer. Based on the information contained in the graph, what was the cause of the sharp decline in CPI? Explain why you chose that sector. (2 points) (Provide an explanation to your answer to receive full credit**).