Consumer Price Index - CPI

Updated: 2006-10-20 15:29

The Consumer Price Index (CPI ) is a measure of the average change in prices over time in a market basket of goods and services.

The CPI is a price index that tracks the prices of a specified basket of consumer goods and services, providing a measure of inflation. The CPI is a fixed quantity price index and considered a cost-of-living index. It is also known as the Retail Price Index in the UK.

The CPI can be used to track changes in prices of goods and services purchased for consumption by households, i.e., of the consumer basket. User fees (such as water and sewer service) and sales and excise taxes paid by the consumer are also included. Income taxes and investment items (such as stocks, bonds, life insurance, and homes) are not included.

The core CPI index excludes goods with high price volatility, such as food and energy. This measure of core inflation systematically excludes food and energy prices because, historically, they have been highly volatile. More specifically, food and energy prices are widely thought to be subject to large changes that often fail to persist and frequently represent relative price changes. In many instances, large movements in food and energy prices arise because of supply disruptions such as drought or OPEC-led cutbacks in production.


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