Consumer Price Index

The consumer price index (CPI) is a measure of inflation in the U.S. It is based on a basket of goods that are consumed daily by consumers. These goods are compared to their prices from the previous year. Prices of goods in the basket are recorded and weighted by each good’s importance. These prices are then compared to the goods’ average prices from a base year. This comparison results in a percentage increase or decrease, which is the amount that the CPI has gone up or down. A large increase in a short period signifies inflation while a large drop signifies deflation. CPI is also used for adjustments to pensions, Medicare, and the cost of living.

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