Published on September 1, 2020

What is the Consumer Price Index(CPI)?


Definition of CPI

The Consumer Price Index or CPI is used to measure the cost of living. In macroeconomics, the CPI is the measurement for the overall cost of the goods and services encountered by the typical urban dweller. CPI is widely used to measure the inflation rate of the United States by the Bureau of Labor Statistics (BLS).

One can compare the inflation rate between two countries by CPI, for example, if China’s CPI value is 109 and England’s CPI value is 100 then one can say China’s rate of inflation is higher than England’s rate of inflation.

Measure Consumer Price Index

The CPI is the price of a “basket” of goods and services purchased by a consumer in the United States. For example, let you go to the movie theatre and you buy a ticket and popcorn at $5 and $2 respectively. So your basket price would be 5+ 2 = 7 dollars.

Customer Price index = (basket price /basket price in the base year) * 100

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