The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a basket of goods and services. The CPI is often used as a measure of inflation, which is the rate at which the general level of prices for goods and services is rising, and the purchasing power of currency is falling.
The CPI is calculated by the Bureau of Labor Statistics (BLS) on a monthly basis. The BLS collects price data from thousands of retail and service establishments across the country, covering a wide range of goods and services, including food, housing, transportation, medical care, and education.
To calculate the CPI, the BLS first selects a base period, which is typically a three-year period. The prices of the goods and services in the basket are then collected in both the base period and the current period, and the price change is calculated as a percentage. The weighted average of these percentage changes is the CPI for that month.
The CPI is often used by policymakers to adjust various economic indicators for inflation, such as wages, Social Security benefits, and taxes. It is also used to make decisions about monetary policy and to assess the health of the economy. High inflation rates can erode the value of savings and make it more difficult for consumers and businesses to plan for the future, so monitoring and controlling inflation is an important goal for many governments and central banks.