What does the Consumer Price Index (CPI) measure?

The Consumer Price Index (CPI) is designed to measure the average change in prices paid by consumers for a fixed basket of goods and services over time. It reflects the cost of living and is used as an economic indicator to assess inflation and purchasing power. The CPI tracks price changes for a variety of items, which typically include food, housing, clothing, transportation, and healthcare, making it a comprehensive gauge of how inflation affects consumers' everyday purchases.

The CPI is significant because it allows for the adjustment of economic policies and social security benefits based on the changing cost of living. It helps economists and policymakers understand the rate of inflation affecting consumers directly, allowing for informed decisions regarding interest rates, wages, and economic planning.

In contrast, other measures mentioned focus on different aspects of the economy. For example, the percentage change in wages pertains to income rather than price levels, the total amount spent by consumers does not account for price changes or purchasing power, and the rate of return on investment relates to the profitability of investments rather than consumer spending patterns. Thus, the focus of the CPI on average price changes directly addresses consumer expenses, making it the most accurate descriptor among the choices provided.