The Labor Department reported that the CPI rose 4.2% through the 12 months ending in May and 0.6% in May. Energy costs rose 4.4% in May, and surged 17.4% over the 12 months ending in May; transportation costs increased 2% in May, and jumped 8.1% over the 12 months ending in May. The price of food increased 0.3% in May, and jumped 5.1% during the 12 months ending in May. The price of milk increased 10.2% over the 12 months. The price of clothing fell 0.2% in May, and decreased 0.4% over the 12 months. The core CPI rose 0.2% in May and 2.3% during the 12 months ending in May.

a. Which components of the CPI basket experienced price increases (i) faster than the average and (ii) slower than the average?
b. Distinguish between the CPI and the core CPI. Why might the core CPI be a useful measurement and why might it be misleading?

Answer rating: 100% (QA)

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