1. What is the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them.

2. How Does the CPI Calculator Work?

The calculator uses the CPI formula:

Where:

• Current Cost — Price of basket in current period
• Base Cost — Price of basket in base period

Explanation: The CPI measures inflation by comparing the current cost of a market basket to the cost of the same basket in a base year.

3. Importance of CPI Calculation

Details: CPI is used as an economic indicator, a deflator of other economic series, and a means of adjusting dollar values to eliminate the effects of inflation.

4. Using the Calculator

Tips: Enter the current cost and base cost in dollars. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What does a CPI of 120 mean?
A: A CPI of 120 means prices have increased by 20% compared to the base period.

Q2: How often is CPI calculated?
A: Government agencies typically calculate CPI monthly to track inflation trends.

Q3: What's the difference between CPI and inflation rate?
A: The inflation rate is the percentage change in CPI over a specific period.

Q4: What are limitations of CPI?
A: CPI may not reflect individual spending patterns and doesn't account for new products or quality changes.

Q5: Why is CPI important for economic policy?
A: Central banks use CPI to guide monetary policy decisions, particularly interest rate adjustments.