What does the Consumer Price Index (CPI) measure?

The Consumer Price Index (CPI) measures the average prices of a specific basket of consumer goods and services over time. This indicator reflects the cost of living for households by tracking price changes in essentials such as food, housing, clothing, and transportation. By analyzing the CPI, economists and policymakers can assess inflation and make informed decisions regarding monetary policy, wages, and the overall health of the economy.

The CPI is crucial for understanding how purchasing power changes as prices fluctuate, allowing both consumers and businesses to adjust their economic behaviors accordingly. Comparing CPI values over different time periods also helps identify trends in inflation or deflation, which can impact economic strategies and individual financial planning.