What does the Consumer Price Index primarily measure?

The Consumer Price Index (CPI) is primarily used to measure inflation by tracking changes in the price level of a basket of consumer goods and services over time. It provides insights into how prices fluctuate and shows how the cost of living evolves for typical households. To calculate the CPI, data is collected on the prices of various items such as food, clothing, transportation, and medical care, which helps gauge the purchasing power of consumers and the overall economic health.

Understanding CPI is crucial for policymakers, economists, and businesses because it influences decisions regarding interest rates, wage adjustments, and social security benefits, making its role in measuring inflation particularly significant.