Consumer Price Index

What is the Consumer Price Index?

The Consumer Price Index (CPI) is a measure that looks at 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 basket goods and services are broken into eight major groups:

  • Food and beverages
  • Housing
  • Apparel
  • Transportation
  • Medical care
  • Recreation
  • Education and communication
  • Other goods and services


CPI is widely used as an economic indicator. It is the most common measure of inflation and indirectly measures the effectiveness of the government’s economic policy. The CPI gives the government, businesses and citizens an idea about how prices are changing in the economy.


CPI = [(Cost of Market Basket in Given Year) / (Cost of Market Basket in Base Year)] x 100


Two types of CPIs are reported each time.


The CPI-W measures the Consumer Price Index for Urban Wage Earners and Clerical Workers (Clerical workers provide general office support that assists in the functioning of a company. They might work directly under an administrative assistant and be assigned basic tasks, such as filing or answering phones). The CPI-W primarily reflects changes in the costs of benefits paid to those on Social Security.


The CPI-U is the Consumer Price Index for Urban Consumers. It accounts for 88 percent of the U.S. population (the CPI-W accounts for 28% of the population) and is the better representation of the general public. This type of CPI is based on the spending of almost all people that live in urban or metropolitan areas. It includes professionals, self-employed workers, unemployed, those in poverty, and retired people. It also includes urban wage earners and clerical workers.


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