CPI
Consumer Price Index — a measure of the average change in prices paid by consumers for a basket of goods and services, used to track inflation.
Example
“When CPI rose 8.5% in March 2022, it marked the highest inflation reading in 40 years.”
Memory Tip
CPI = Consumer Price Index. The most-watched inflation scoreboard.
Why It Matters
CPI directly affects your purchasing power and financial planning because it measures inflation, which determines whether your money buys more or less over time. Understanding CPI helps you make decisions about savings, investments, and budgeting since it shows whether prices are rising faster than your income or savings interest rates.
Common Misconception
Many people believe CPI measures the total cost of living, but it actually tracks only the price changes of a specific basket of goods and services, not whether you can afford housing, healthcare, or other major expenses. CPI also does not account for individual spending habits, so a person who buys different items may experience inflation very differently than what CPI reports.
In Practice
If the CPI rises from 250 to 255 in one year, that represents a 2 percent inflation rate, meaning a product that cost $100 last year might now cost approximately $102. For example, if your salary stayed at $50,000 while CPI increased 3 percent, your real purchasing power decreased because you can now buy less with the same amount of money than you could the previous year.
Etymology
Acronym for Consumer Price Index. Published monthly by the Bureau of Labor Statistics since 1919.
Common Misspellings
Learn economics & finance from top universities
Related Terms
More in economics
Other economics terms you should know
See Also
Need financial definitions?
Clear definitions for 2,500+ finance, insurance, and investing terms.