How is consumer price index significant in an economy?


How is consumer price index significant in an economy?

Consumer Price Index (CPI):

Consumer price index is a weighted index for measuring inflation rate in the country. It compares current price level to those of base year. One of the disadvantages of consumer price index is that it includes the imported goods which might have imported inflation.

Answer and Explanation:

Consumer Price Index (CPI) is an indicator of inflationary change in the economy. It measures inflation rate by considering 'basket of consumer goods' and analyzing their price. It compares current years prices with base year prices. This is done by dividing amount of money required to buy same quantities of goods now by those of base year. In United States, Bureau of Labor Statistics (BLS) is responsible for calculating inflation rate. Inflation rate is useful mainly in lending, investing, buying and selling.

Learn more about this topic:

Consumer Price Index: Measuring the Cost of Living and Inflation

from Economics 102: Macroeconomics

Chapter 5 / Lesson 1

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