Tracking Inflation through the Consumer Price Index (CPI)

By Stock Research Pro • January 31st, 2010

The consumer price index or “CPI” in an index to measure changes in the prices of a basket of basic consumer goods and services, such as food, medical care, and transportation. The CPI looks at a predetermined group of goods and services, weighs them according to importance, and averages their prices. By calculating the CPI regularly (and on a regional basis) the measure helps track inflation over time and is one of the most closely observed economic statistics.

The consumer price index adjusts for the effect of inflation on the real value of money and is applied to such things as wages, pensions, and regulated prices. Prices tend to fluctuate over time, so tracking the CPI can provide insight as to whether the economy is seeing inflation at a rate that wages cannot keep pace. Alternatively, the CPI might indicate a drop in prices, a situation known as “deflation’. Deflation can result following a market correction. In general, seasonal fluctuations in the CPI are less important than changes over long periods.


The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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