Consumer Price Index: Measuring Inflation

The Consumer Price Index (CPI) is a measure of the change in the price of goods and services purchased by consumers. It is calculated by the Bureau of Labor Statistics (BLS) and is used to track inflation, which is the rate at which prices are rising.

How is the CPI calculated?

The CPI is calculated by tracking the prices of a basket of goods and services that are purchased by consumers. The basket includes items such as food, housing, transportation, and healthcare. The BLS collects price data from a sample of businesses and households across the country.

The CPI is a weighted average of the prices of the items in the basket. The weights are based on the importance of each item in the average consumer's budget. For example, food has a higher weight than clothing because most people spend more money on food.

What is the purpose of the CPI?

The CPI is used to track inflation and to make economic decisions. The Federal Reserve uses the CPI to set interest rates. Businesses use the CPI to make pricing decisions. Consumers use the CPI to track the cost of living.

How does the CPI affect you?

The CPI can have a big impact on your finances. If the CPI rises, your cost of living will increase. This means that you will need to earn more money to maintain your standard of living.

The CPI can also affect your investments. If the CPI rises, the value of your investments may decrease. This is because investors are less likely to buy stocks and bonds when inflation is high.