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Consumer Price Index (CPI)

The Consumer Price Index (CPI) is a measure of the average change in prices paid by consumers for goods and services over time. It is used as an indicator of inflation and reflects the cost of living by tracking the prices of items like food, housing, clothing, transportation, and medical care. The CPI is widely monitored by policymakers, economists, and investors to gauge inflationary pressures in an economy and inform monetary policy decisions.

Example

If the CPI increases by 2% over a year, it indicates that the average price level for a basket of goods and services has risen by 2%, signaling inflation.

Key points

• The CPI measures the average change in prices for goods and services over time, serving as an indicator of inflation.

• It tracks prices of items such as food, housing, transportation, and healthcare.

• The CPI is used by policymakers and investors to assess inflationary trends and inform monetary policy.

Quick Answers to Curious Questions

The CPI measures the average change in prices paid by consumers for a basket of goods and services, indicating inflation or deflation.

The CPI is important for tracking inflation, guiding monetary policy, and adjusting wages, pensions, and government benefits to keep pace with rising costs.

An increase in the CPI indicates higher prices for goods and services, reducing consumers’ purchasing power.