Consumer Price Index (CPI)

 What Is the CPI?

Ans: The CPI is essentially a measure of the cost of living. It reflects the prices of a variety of goods and services commonly purchased by households, grouped into categories such as:

1. Food and Beverages: Includes groceries and dining out.

2. Housing: Covers rent, utilities, and home-related expenses.

3. Apparel: Tracks clothing and footwear costs.

4. Transportation: Includes vehicle purchases, fuel, and public transport.

5. Medical Care: Covers healthcare services, prescription drugs, and medical supplies.

6. Recreation, Education, and Communication: Includes expenses for entertainment, education, and internet services.

7. Other Goods and Services: Covers personal care items and miscellaneous expenses.

How Is the CPI Calculated?

Ans: The CPI is calculated by:

1. Selecting a basket of goods and services that reflects typical consumer purchases.

2. Tracking the prices of these items over time.

3. Comparing current prices to a base year (set at 100) to measure price changes.

Formula

CPI=( Cost of basket in base period Cost of basket in current period )×100