What is the purpose of the Consumer Price Index?

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The Consumer Price Index (CPI) is a measurement of consumer prices on a certain chosen group (sometimes called a "basket") of goods. Like other such measurements, it is an economic indicator. Economists and economic decision-makers can look at the CPI to determine how the economy is doing, particularly to monitor inflation levels. Inflation occurs when prices on key goods rise very quickly, and too much inflation can be a major drag on economic growth.

According to the Bureau of Labor Statistics, the CPI is also used for "adjusting income payments." This can affect Social Security and food stamp recipients, whose payments from the federal government would not go as far if prices were rising. The CPI is also relevant to the federal minimum wage for similar reasons.

Private companies can also look at the CPI to determine business strategies. Knowing whether prices of key goods are rising or falling is valuable information for a business trying to decide marketing and production strategies.

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A Consumer Price Index, or CPI, serves as a measurement of the change in price of goods and services purchased by households, specifically those in urban environments, such as food, transportation, and medical care. The CPI is not a precise measurement, but rather a statistical estimate based on the fluctuation in price of a subset of goods whose price is continuously monitored. The CPI serves primarily as a means of measuring the impact of inflation on an economy, and tracking the expenditures of "average" households. The CPI is generally computed on a monthly basis, allowing for a relatively fine-grained overview of the volatility of commonly purchased goods and services which are largely assumed to be of vital necessity to the consumer.

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