What Is the Consumer Price Index – CPI?
The Consumer Price Index (CPI) is a metric that measures a basket of consumer goods and services. The parameters include transportation, food, and medical care.
CPI is calculated by taking their weighted average prices. This is measured by taking and combining price fluctuations for each object in the specified basket of goods.
The changes in CPI are used to measure price changes associated with the cost of living. CPI is one of the indicators most commonly used to classify periods of inflation or deflation.
Features of Consumer Price Index – CPI
CPI tests the average price change over time that customers are paying for a basket of goods and services commonly called inflation. Essentially, it tries to calculate the aggregate price level in an economy and thus measure the purchasing power of the unit of currency in a region.
For measuring CPI, the weighted average of the prices of goods and services is used, which approximates the consumption patterns of a person. The quoted inflation rate is the change in the index from the preceding period, whether monthly, quarterly, or annually.
It measures the price variation for retail goods and other items that consumers pay. However, it does not include things such as savings and investments. It may lead to the exclusion of foreign visitors in a country from spending.
CPI figures include the country's workers, self-employed, the poor, the unemployed, and the disabled. Non-metro or rural populations, farm families, armed forces, persons serving in prison, and those in mental hospitals are not included while studying the CPI.
Though there are several types of CPIs depending on the various segments of the economy, there are two popular forms of CPIs registered every time. These include the CPI-U (for all Urban Consumers), CPI-W (for Urban Wage Earners and Clerical Workers).
Consumer Price Index - CPI in India
In India, CPI increased to 150.40 points in December 2019 from 148.60 points in November of 2019.
The main component in the consumer price index is food and beverages (45.86 per cent of total weight), followed by cereals and pulses (9.67 per cent), and milk and products (6.61 per cent).
