In economics, the Consumer Price Index measures the average change in prices paid by consumers for a basket of goods and services.
Statistical agencies construct the CPI by selecting a representative basket and tracking the prices of its components over time. The basket commonly includes categories such as housing, food, transport, clothing, medical care, and recreation. Each category receives a weight intended to reflect consumer spending patterns.
The CPI is widely used to monitor inflation, adjust some contracts and benefits, and compare purchasing power across periods. It is an index rather than a currency amount, so its numerical level depends on the chosen base period and methodology.
A common mix-up is assuming the CPI measures every household’s personal cost of living exactly. Spending patterns differ between households, and the index may use methods such as substitution adjustments. Producer prices and GDP price measures answer related but different questions.