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What is the Consumer Price Index?
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The Consumer Price Index, often abbreviated as CPI, measures the average change in prices paid by consumers for a basket of goods and services over time. These goods and services include items such as food, housing, transportation, and healthcare. The CPI is widely used to track inflation in an economy.
The Consumer Price Index shows how the cost of living changes over time.
Governments and economists calculate the CPI by monitoring the prices of a representative group of everyday products and services. When the index rises, it means that the average price level is increasing and inflation is occurring. When it falls, it may indicate that prices are decreasing. Central banks closely follow CPI data because it helps them decide whether interest rates should be raised or lowered to keep inflation under control.
Short example:
Suppose the CPI index level is 100 in one year.
One year later the index rises to 105.
This means that the average price of the basket of goods and services has increased by about 5 percent. As a result, consumers need more money to buy the same products as the year before.
Disclaimer: Investing brings risks. Our analysts are not financial advisors. Always consult an advisor when making financial decisions. The information and tips provided on this website are based on our analysts' own insights and experiences. Therefore, they are for educational purposes only.
