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Definition: CPI (Consumer Price Index)
It is a measure of change in level of prices of consumer goods and services purchased by households. This index is found out by fixing a year as the base year and using a market basket of consumer goods across the years. The value of the goods in the market basket is calculated by assigning weights to the individual goods and services. The market values of the goods in the years following the base year are then indexed to it.
This index provides a measure of the price change between the two periods. It can also be used to measure inflation, i.e. the percentage change in the index. The data regarding price and weighting are collected by sampling agencies and probabilistic sampling is used to find out CPI.
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