what is the consumer price index

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 periodically updated 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 the prices are then adjusted for changes in quality or features. The CPI is the most widely used measure of inflation, closely followed by policymakers, financial markets, businesses, and consumers. The CPI can be used to track inflation over time and to compare inflation rates between different countries. The CPI is generally the best measure for adjusting payments to consumers when the intent is to allow consumers to purchase at todays prices, a market basket of goods and services equivalent to one that they could purchase in an earlier period. 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.