What does the Consumer Price Index (CPI) measure?

The Consumer Price Index (CPI) measures the average changes in consumer prices for a specific basket of goods and services over time. It is a vital economic indicator that reflects the cost of living and inflation levels that consumers experience. By tracking the prices of a selected group of items — including food, clothing, housing, transportation, and other goods — the CPI provides insights into how purchasing power is affected by price changes.

The CPI is constructed using data collected from various sources, allowing economists and policymakers to understand inflation trends and make informed decisions regarding monetary policy and economic strategies. Changes in the CPI can influence various economic factors, including interest rates, wage negotiations, and government benefits indexed to inflation, making it an essential measure for understanding economic health.