What does the Consumer Price Index (CPI) measure?

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 specifically targets the inflation or deflation experienced by consumers in the marketplace. As such, CPI is a key indicator of the economic health of a country, reflecting how prices for everyday items—such as food, clothing, and housing—change. When prices rise, it indicates inflation; when they fall, it signals deflation. This index is crucial for understanding the purchasing power of consumers and is often used by policymakers, economists, and financial analysts to make decisions related to monetary policy and economic planning.