3 Quick Points to Simplify the Consumer Price Index (CPI)

A widely used metric to measure inflation and deflation

Tunji Onigbanjo


Photo by Veronika Koroleva on Unsplash

The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. The CPI is typically represented as a percentage. Changes in the CPI are used to assess price changes associated with the cost of living. The CPI is one of the most widely used metrics to measure periods of inflation or deflation. The U.S. Bureau of Labor Statistics (BLS) reports the CPI monthly and has calculated it as far back as 1913. The following three points will help to simplify CPI:

1. Understanding Inflation and deflation

2. The Consumer Goods and Services in the CPI Basket

3. The CPI Formula

1. Understanding Inflation and Deflation

Inflation is when the price of goods and services rises, while deflation is when the price of goods and services falls. An increase in the CPI represents inflation when goods and services increase in prices. A decrease in the CPI represents deflation when goods and services fall in pricing. When it comes to the most recent…