The Consumer Price Index (CPI) is a measure of the average change in prices paid by consumers for goods and services over time. It is considered an important indicator of inflation as it tracks the price changes of a basket of goods and services commonly purchased by households.
The CPI is calculated by taking the weighted average of prices for a basket of goods and services, which includes items such as food, housing, clothing, transportation, medical care, and entertainment. The prices of these items are collected regularly by government agencies and private organizations.
The CPI is calculated by comparing the current price of the basket of goods and services to the price of the same basket in a base year, which is assigned a value of 100. The difference between the current price and the base year price is then expressed as a percentage to give the inflation rate.
Central banks and policymakers use the CPI to monitor inflation and adjust monetary policy accordingly. The CPI is also used by businesses and investors to adjust for inflation when analyzing financial statements and making investment decisions.
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