1. What is the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. It is a key indicator of inflation and purchasing power trends.

2. How Does the CPI Calculator Work?

The calculator uses the basic CPI formula:

Where:

• Current Cost — Price of basket in current period
• Base Cost — Price of basket in base period

Explanation: The CPI compares the current cost of a fixed basket of goods and services to its cost in a base period, multiplied by 100 to create an index.

3. Importance of CPI Calculation

Details: CPI is crucial for economic policy, cost-of-living adjustments, inflation measurement, and as a deflator in economic calculations.

4. Using the Calculator

Tips: Enter both current and base period costs in dollars. Both values must be positive numbers. The result shows the price index relative to the base period (which is 100).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between CPI and inflation rate?
A: CPI measures price levels, while inflation rate measures the percentage change in CPI over time.

Q2: What does a CPI of 120 mean?
A: It means prices have increased by 20% compared to the base period.

Q3: What are the limitations of CPI?
A: CPI may not reflect individual consumption patterns, doesn't account for new products immediately, and may not capture quality changes.

Q4: How often is CPI calculated?
A: The Bureau of Labor Statistics releases CPI data monthly for hundreds of items across categories.

Q5: What is core CPI?
A: Core CPI excludes food and energy prices, which are more volatile, to show underlying inflation trends.