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Consumer Price Index (CPI) Explained: What It Is and How It's Used
8 minute and 31 second read time
By JASON FERNANDO Updated December 13, 2022
Reviewed by PETER WESTFALL
Fact checked by PETE RATHBURN
Consumer Price Index (CPI)
Investopedia / Katie Kerpel
What Is the Consumer Price Index (CPI)?
The Consumer Price Index (CPI) measures the monthly change in prices paid by U.S. consumers. The Bureau of Labor Statistics (BLS) calculates the CPI as a weighted average of prices for a basket of goods and services representative of aggregate U.S. consumer spending.
The CPI is one of the most popular measures of inflation and deflation. The CPI report uses a different survey methodology, price samples, and index weights than the producer price index (PPI), which measures changes in the prices received by U.S. producers of goods and services.
KEY TAKEAWAYS
The Consumer Price Index measures the overall change in consumer prices based on a representative basket of goods and services over time.
The CPI is the most widely used measure of inflation, closely followed by policymakers, financial markets, businesses, and consumers.
The widely quoted CPI is based on an index covering 93% of the U.S. population, while a related index covering wage earners and clerical workers is used for cost-of-living adjustments to federal benefits.
The CPI is based on about 94,000 price quotes collected monthly from some 23,000 retail and service establishments as well as 43,000 rental housing units.
Housing rents are used to estimate the change in shelter costs including owner-occupied housing that account for nearly a third of the CPI.