What does the Consumer Price Index (CPI) measure?

The Consumer Price Index (CPI) is a critical economic indicator that measures changes in the price level of a specific basket of consumer goods and services over time. This basket includes everyday items that consumers typically purchase, such as food, clothing, rent, and healthcare. By tracking the prices of these items, the CPI provides insight into inflation, which reflects how much the cost of living is rising or falling.

The CPI is particularly valuable for assessing the purchasing power of consumers and is often used by policymakers, economists, and businesses to make informed decisions. For example, an increasing CPI indicates that prices are rising, which may prompt policymakers to consider adjustments in monetary policy to manage inflation.

This focus on prices distinguishes the CPI from other economic indicators. For instance, changes in the employment rate relate to the labor market and are measured through different metrics, while corporate profits and total production levels pertain to business performance and national output, respectively. Thus, the CPI specifically centers on consumer price changes, making it an essential tool for understanding economic conditions related to consumer behavior and inflation.