Econ Grapher

CPI - Consumer Price Index

What is CPI?
CPI stands for Consumer Price Index. It is an index made up of a representative basket of consumer goods in an economy that is designed to track prices over time. Various countries have their own versions of it, and most calculate a Consumer Price Index or some similar index of prices e.g. UK RPI, EU HICP, etc. The main point of measuring prices is to assess the trends over time. Thus the CPI is used as a major tool in assessing the level of inflation in an economy. It is also a key monetary policy target for many central banks, e.g. the RBNZ has a mandate to keep inflation within 1 and 3%. A rising CPI figure is referred to as inflation, while a declining value is called deflation. CPI is released on a monthly basis in some countries e.g. US, UK, China, and a quarterly basis in others e.g. Australia, New Zealand.

How does it relate to Markets?
CPI figures often have an impact on markets due to the relation between inflation and monetary policy and thus interest rates. As always the impact on markets will tend to be dictated by the actual versus consensus forecasts/market expectations. The market impact of CPI is discussed in greater detail in the inflation entry of the encyclopedia.

Calculation
The index is calculated as a weighted average change in the prices of the basket of goods that are covered by the index (in reference to a base period). 

CPI= (Productrep X Pricecurrent)/(Productrep X Price11987*)

CPI and Inflation
For more information on inflation, read the inflation entry of the encyclopedia.

Sources and further reading:
US Bureau of Labour Statistics
Investopedia - Consumer Price Index
The Consumer Price Index and index number purpose

Graph Library:
Metric - CPI

Original Source: http://www.econgrapher.com/encyclopedia-cpi.html

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