What does the Consumer Price Index (CPI) measure?

The Consumer Price Index (CPI) measures the general level of prices in the economy. It specifically tracks changes in the price level of a basket of consumer goods and services over time, providing insights into inflation or deflation trends. By calculating the average price change of this basket, the CPI helps economists and policymakers understand how the purchasing power of consumers is affected by fluctuations in prices.

This measurement is essential for various economic analyses, influencing monetary policy, cost-of-living adjustments, and social security measures. The CPI is often used as an economic indicator to gauge the health of an economy and to adjust other financial metrics to account for changes in inflation. Thus, it is a crucial tool for understanding the economic environment and its impact on consumer behavior.