The Consumer Price Index measures the average change over time in prices paid by urban consumers for a market basket of goods and services.
A CPI basket represents typical household purchases, such as food, housing, transportation, medical care, apparel, and recreation. Statistical agencies price these items repeatedly, then combine the results using expenditure weights. The index is usually scaled so that a chosen reference period equals 100; a later value of 120 indicates prices are 20% higher than in that reference period.
In the United States, the Bureau of Labor Statistics publishes several CPI measures, including CPI-U, which covers urban consumers and represents most of the U.S. population. CPI changes are widely used to track inflation and adjust wages, pensions, tax brackets, and contracts.
A common mix-up is treating the CPI as a direct measure of every household’s cost of living. Spending patterns differ, and the basket can lag behind new products or changing habits. The GDP deflator covers domestically produced final goods and services, while the Producer Price Index tracks prices received by producers.