What does the Consumer Price Index (CPI) measure?

The Consumer Price Index (CPI) is a statistical measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and healthcare. The CPI is often used as an economic indicator to gauge the inflation rate and the cost of living for households. When we say it measures the "changes in the price level of consumer goods and services," it highlights how the costs of these goods and services fluctuate over time, reflecting trends in consumer purchasing power and economic conditions. This makes the CPI a crucial tool for policymakers and economists alike when assessing economic performance and making informed decisions regarding monetary policy.