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ECONOMICS REPORT - Inflation and the U.S. Consumer Price Index - 2004-05-21

Broadcast: May 21, 2004

This is Bob Doughty with the VOA Special English Economics Report.

Concern about inflation is in the news a lot lately. In the United States, prices have risen especially for gasoline and other forms of energy. Higher energy prices lead to higher prices for other goods.

Oil prices are high. But experts say this is not the only reason for the current fuel prices. They say companies in the United States are making as much oil into gasoline as they can. But drivers need lots of fuel for popular sport utility vehicles and personal trucks.

Government economists reported that inflation rose at a yearly rate of four-point-four percent between December and April. For all of last year, the United States had an inflation rate of one-point-nine percent. These numbers are based on the Consumer Price Index.

The Consumer Price Index is a way to measure average change in prices over time. It shows how inflation affects the average person. The Bureau of Labor Statistics gives a report each month.

Some economists say the economy may be growing too fast and causing prices to rise. They expect the Central Bank to raise interest rates. Such action raises the cost to borrow money. Less borrowing and spending can help keep down prices.

The Federal Open Market Committee met this month and decided not to raise interest rates. But the committee meets again in June. One measure it will look at is the Consumer Price Index.

Here is how an index works. Let us say that some object cost an average of ten cents in nineteen-ninety. An economist then gives that price an index value of one-hundred.

In the next year, the price goes up to eleven cents. That is a ten-percent increase. So the index value for the year is one-hundred-and-ten. Changes are recorded this way year after year.

The Department of Labor gathers prices that Americans pay for medicines, housing, clothes and food. It gathers prices for education, transportation and other activities.

The Consumer Price Index is made up of thousands of measures. But it does not measure prices in areas outside of cities and large towns. Also, it does not measure how price changes affect individual groups, like the poor or retired people.

The measure mostly widely reported is called the Consumer Price Index for All Urban Consumers. It measures prices paid by about eighty-seven percent of Americans.

This VOA Special English Economics Report was written by Mario Ritter. This is Bob Doughty.