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Consumer Price Index (CPI)
Definition
The Consumer Price Index measures the average change in prices paid by consumers for a basket of goods and services over time.
Explanation
The CPI is the most commonly used measure of inflation. It tracks price changes in categories like food, housing, transportation, and medical care. The Bureau of Labor Statistics publishes CPI data monthly. CPI is used to adjust Social Security benefits, tax brackets, and many contracts.
Core CPI excludes volatile food and energy prices to show underlying inflation trends. CPI-U covers urban consumers, representing about 93% of the US population.
Example
If the CPI shows 3% annual inflation, a grocery bill of $500 per month would rise to about $672 per month in 10 years.