What is cpi used for

The new system has enhanced flexibility and review capabilities. As part of the redesign process, a few minor changes in methodology were introduced, most of which affect the imputation of price changes. U niversity of W isconsin —Madison. Home Resources What is the consumer price index and how is it used? Whose buying habits are represented by the CPI? The purchasing power of the consumer's dollar measures the change in the value to the consumer of goods and services that a dollar will buy at different dates.

In other words, as prices increase, the purchasing power of the consumer's dollar declines. As a means of adjusting dollar values: The CPI is often used to adjust consumers' income payments, for example, Social Security; to adjust income eligibility levels for government assistance; and to automatically provide cost-of-living wage adjustments to millions of American workers.

The CPI affects the income of about 80 million persons as a result of statutory action: For instance, changes in consumption patterns or the introduction of new goods and services are automatically reflected in the GDP deflator but not in the CPI.

GDP represents the total output of goods and services. The GDP deflator addresses this by showing the effect of price changes on GDP, first by establishing a base year and, second, by comparing current prices to prices in the base year.

It expresses the extent of price level changes, or inflation, within the economy by tracking the prices paid by businesses, the government, and consumers. For a more accurate and comprehensive measure of U.

Personal consumption expenditures PCEs are another measure of imputed household expenditures and how those costs change over time. Federal Reserve when making monetary policy decisions. The PCE Price Index is also weighted by data acquired through business surveys, which tend to be more reliable than the consumer surveys used by the CPI.

These adjustments are not made in the CPI formula. These factors result in an arguably more comprehensive metric for measuring inflation by using the PCE Price Index. Bureau of Labor Statistics. Bureau of Economic Analysis. Federal Reserve. Accessed June 26, Lifestyle Advice. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. These choices will be signaled globally to our partners and will not affect browsing data.

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Your Money. Personal Finance. Your Practice. Popular Courses. Economics Macroeconomics. Table of Contents Expand. CPI Subcategories. Economists Discrepancies. GDP Deflator. PCE Price Index. Key Takeaways The Consumer Price Index CPI is a measure of the average change over time in the prices paid by consumers in urban households for a basket of goods and services. Changes in the CPI reflect changes in the cost of living in the U. The CPI is an economic indicator that is most frequently used for identifying periods of inflation or deflation in the U.