Final answer:
The Consumer Price Index (CPI) measures changes in the prices of a fixed basket of about 400 goods and services representing the average consumer's purchases, and it is a key indicator of the cost of living and household-based inflation.
Step-by-step explanation:
The index that measures changes in the prices of about 400 goods and services such as food, housing, apparel, and medical care is the Consumer Price Index (CPI). The CPI is a measure of inflation calculated by U.S. government statisticians and is based on the price level of a fixed basket of goods and services. This fixed basket represents the average consumer's purchases, making the CPI an essential indicator of changes in the cost of living.
It's important to note that the CPI is considered the most accurate measure of inflation as it impacts households, sometimes referred to as the cost-of-living index. Unlike the Producer Price Index (PPI), which is based on prices paid for supplies by producers, or the GDP deflator, which includes all GDP components and does not have a fixed basket, the CPI specifically captures the prices of products purchased by households.