The Consumer Price Index (CPI) is a statistical measure that tracks the average change over time in the prices paid by consumers for a basket of goods and services. It is widely used as a key indicator of inflation, reflecting how the cost of living changes for households. Here are key points about CPI:
- The CPI measures the percentage change in prices that consumers pay for goods and services from month to month.
- It is based on a fixed basket of goods and services, which may include items like food, housing, clothing, transportation, medical care, and entertainment.
- The basket is updated periodically to reflect changing consumer spending habits.
- Price data are collected frequently (often monthly) from numerous retail stores, service establishments, rental units, and healthcare providers.
- The CPI adjusts for changes in product quality and accounts for consumer substitution behavior (switching to cheaper alternatives when prices rise).
- It covers a large portion of the population; for example, in the U.S. it represents about 93% of the population's spending.
- CPI data are used to measure inflation, adjust wages, pensions, and social security payments, and inform economic policy decisions.
- The Bureau of Labor Statistics (BLS) in the U.S. is a key agency responsible for calculating CPI.
In essence, the CPI helps quantify how much prices have risen or fallen over time, indicating the inflation rate and affecting economic decisions for consumers, businesses, and policymakers. This description applies broadly though specific methodology may vary by country.
