What is the purpose of the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) serves the specific purpose of measuring the average change over time in the prices paid by consumers for a standard market basket of goods and services. This index reflects how the cost of living changes as prices fluctuate, providing insight into inflation which affects purchasing power. By monitoring changes in the CPI, economists can assess how price increases (or decreases) impact consumers, which can inform policies and economic analysis.

The CPI is critical for understanding economic conditions since it affects interest rates, wage negotiations, and government policies related to inflation. It plays a distinct role in macroeconomic analysis compared to measuring total output, unemployment levels, or economic growth rates, which focus on different aspects of economic performance.