U.S. Consumer Price Index (CPI)

The Consumer Price Index (CPI) is a measure of the average change in prices over time for a basket of goods and services commonly consumed by households. It is used to track inflation and assess changes in the cost of living for consumers. The CPI is an important economic indicator that is closely watched by policymakers, economists, businesses, and investors.

The CPI is calculated by the Bureau of Labor Statistics (BLS) on a monthly basis. The BLS collects data on the prices of thousands of goods and services from a variety of sources, including retail stores, service providers, and online sellers. The prices are then weighted based on the amount of money spent on each item by households. The weighted prices are then combined to create an overall index that represents the average change in prices over time.

The CPI is divided into two main categories: goods and services. The goods category includes items such as food, clothing, and household goods, while the services category includes items such as healthcare, education, and transportation.

The CPI is important because it is used to track inflation, which is the rate at which prices are increasing over time. Inflation can have a significant impact on the economy, affecting everything from interest rates to consumer spending. If inflation is too high, it can erode the value of savings and reduce purchasing power, which can lead to economic instability. If inflation is too low, it can lead to deflation, which can also be harmful to the economy. 

The CPI is also used to adjust other economic indicators for inflation. For example, the Gross Domestic Product (GDP) is adjusted for inflation using the CPI to arrive at real GDP, which provides a more accurate picture of economic growth over time. 

In addition, the CPI is used to calculate cost-of-living adjustments (COLAs) for Social Security and other government programs. COLAs are designed to help ensure that benefits keep pace with the rising cost of living, as measured by the CPI.

In conclusion, the Consumer Price Index is a key economic indicator that measures the average change in prices over time for a basket of goods and services commonly consumed by households. It is used to track inflation, adjust other economic indicators for inflation, and calculate cost-of-living adjustments for government programs.