Consumer Price Index (CPI)
A measure of the average change in prices paid by consumers for a basket of goods and services.
Definition
The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, including transportation, food, medical care, and housing. Published monthly by the Bureau of Labor Statistics (BLS), CPI is the most widely used measure of inflation. Core CPI excludes volatile food and energy prices to show underlying inflation trends. CPI is used to adjust Social Security payments, tax brackets, and TIPS (Treasury Inflation-Protected Securities). Year-over-year CPI changes indicate the inflation rate. The Federal Reserve closely monitors CPI (along with PCE) when making interest rate decisions.
Related Terms
Inflation
The rate at which the general level of prices for goods and services rises, eroding purchasing power.
EconomyDeflation
A decrease in the general price level of goods and services, increasing the purchasing power of money.
EconomyFederal Funds Rate
The interest rate at which banks lend reserves to each other overnight, set by the Federal Reserve.
EconomyPurchasing Power
The quantity of goods and services that can be purchased with a unit of currency.