What is the role of the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) serves as a critical tool for measuring the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. This measurement encompasses various categories, including food, clothing, rent, and transportation, which reflects the changing costs of living.

By analyzing the CPI, policymakers, economists, and analysts can assess inflation or deflation trends, which significantly impact economic policy and consumer behavior. It provides insight into how price changes affect purchasing power and cost of living, making it essential for understanding economic conditions and guiding decision-making in both public and private sectors.

In essence, the CPI is pivotal for inflation measurement, and its insights into price changes help in shaping fiscal and monetary policy, contrasting it with other metrics that might focus on different economic aspects, such as interest rates or stock market performance.