Consumer price index (CPI)

Definition

The Consumer Price Index (CPI) measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. It is a key indicator used to assess inflation and the cost of living.

5 Must Know Facts For Your Next Test

1. CPI is calculated by the Bureau of Labor Statistics (BLS) on a monthly basis.
2. It includes various categories such as food, housing, apparel, transportation, medical care, recreation, education, and communication.
3. CPI can be used to adjust wages, pensions, and cost-of-living adjustments (COLAs).
4. A rising CPI indicates inflation, while a falling CPI indicates deflation.
5. Core CPI excludes volatile food and energy prices to provide a clearer view of long-term inflation trends.

Review Questions

• What government agency is responsible for calculating the Consumer Price Index?
• Which components are typically excluded from the Core CPI?
• How does an increase in the CPI affect purchasing power?

Related terms

Inflation: A general increase in prices and fall in the purchasing value of money

Deflation: A decrease in the general price level of goods and services

Cost-of-Living Adjustment (COLA): An increase in income to maintain purchasing power after inflation