The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. The CPI is calculated by using a representative basket of goods and services that is updated periodically to reflect changes in consumer spending habits. The prices of the goods and services in the basket are collected monthly from a sample of retail and service establishments and are adjusted for changes in quality or features. The CPI is the most widely used measure of inflation and is sometimes viewed as an indicator of the effectiveness of government economic policy. The CPI is not a perfect measure of inflation or the cost of living, but it is a useful tool for tracking these economic indicators. Some key concepts related to the CPI include:
-
Market basket: The market basket is a representative selection of goods and services that is used to calculate the CPI.
-
Inflation: The CPI can be used to track inflation over time and to compare inflation rates between different countries.
-
Consumer experience: The CPI focuses on the consumer experience of inflation, therefore the price sought is typically the consumers out-of-pocket price, including sales and excise taxes.
-
Urban households: The CPI represents changes in prices of all goods and services purchased for consumption by urban households.
Overall, the CPI is an important economic indicator that is widely used to track inflation and changes in the cost of living over time.
