Consumer Price Index Overview

A measure of the overall cost of goods and services bought by a typical consumer.

The percentage change in the price level from the previous period.

A situation where the economy's overall price level is rising.

The year used as a benchmark to compare prices over time.

A basket of goods and services that represents the typical purchases of a consumer.

The process of calculating the cost of a basket of goods and services at different points in time.

The process of determining which prices are most important to the typical consumer.

The process of collecting price data for each good and service in the basket at different time periods.

The Consumer Price Index (CPI) is a measure of the overall cost of goods and services bought by a typical consumer. It is often used to calculate the inflation rate.

The cost of the CPI basket is the total cost of purchasing all of the goods and services in the CPI basket for a particular year. It is used to calculate the CPI.

The CPI in a specific year is calculated by dividing the cost of the CPI basket in that year by the cost of the CPI basket in the base year and then multiplying by 100.

The CPI inflation rate is the percentage change in the CPI from one year to the next. It measures how much prices have risen over time.

The CPI is used to measure inflation, a general increase in the price level of goods and services over time. This can affect the purchasing power of consumers.

A weighted average of prices of a basket of consumer goods and services, used to measure the overall level of prices in the economy.

The CPI is calculated for different geographical regions, including provinces, territories, and major cities.

A measure of the underlying trend in inflation, excluding volatile price changes in certain categories like food and energy.

The CPI is not a perfect measure of the cost of living. One reason is that consumers tend to substitute cheaper goods for more expensive goods when prices rise, which is not fully captured by the CPI.

Another limitation of the CPI is the introduction of new goods, which are often not included in the initial basket and therefore don't affect the CPI as much as they should.

The CPI doesn't perfectly account for improvements in the quality of goods, which can actually reduce the cost of living.

The GDP deflator measures the price level of all goods and services produced in a country, while the CPI measures the price level of a basket of goods and services purchased by typical consumers.

Both the GDP deflator and the CPI are important indicators for policymakers and economists to understand price changes in the economy.

Adjusting a dollar amount for inflation to compare it with a different time period.

The automatic correction of a dollar amount for the effects of inflation by law or contract. It ensures that the value of money is not eroded by rising prices.

A cost-of-living allowance that automatically increases wages when the Consumer Price Index (CPI) rises. This aims to keep wages in line with the rising cost of living.

The interest rate quoted without considering the effects of inflation.

The interest rate that factors in the effects of inflation. It tells you the real gain in purchasing power after adjusting for price changes.

Comparing money amounts across time, considering the effects of inflation, is crucial for understanding interest rates. It helps determine the true value of money over time.

The gains from interest earned may not necessarily make you wealthier if inflation has eroded the purchasing power of your money.

Understanding the difference between nominal and real interest rates is essential for making sound financial decisions. Nominal interest rates alone can be misleading.