What is the Consumer Price Index?
- The Consumer Price Index (CPI) is a measure that examines the average change in prices paid by consumers for a basket of goods and services over time.
- It serves as an essential indicator of inflation, reflecting the purchasing power of a currency and how the cost of living changes for the average consumer.
How Do I Remember It?
- Think of the Consumer Price Index as a tool that tracks how the prices of things we buy regularly change. It’s like a shopping cart with common items, and the index helps us see how the overall cost of these items goes up or down over time.
Real World Example
- Imagine the Consumer Price Index includes items like groceries, clothing, rent, and healthcare. If the CPI shows an increase, it means the average cost of these items is rising, indicating inflation.
- This helps policymakers and individuals understand how the economy’s purchasing power is evolving.
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