What is consumer price index. (CPI)

CPI basically refers to the a measure of a country’s general level of prices based on the cost of a typical basket of consumer goods and services. This tells us the price difference in countries comparing the same products or similar products in the same category. The consumer price index (CPI) is the instrument to measure inflation. It is used to estimate the average variation between two given periods in the prices of products consumed by households.

CPI is a statistical time-series measure of a weighted average of prices of a specified set of goods and services purchased by consumers. It is a price index that tracks the prices of a specified basket of consumer goods and services, providing a measure of inflation.

A rising CPI means a rising prices for goods and services and is an early indicator of inflation. Assessing the impact of CPI on value of currency is difficult. If rising CPI means likely increase in interest rate by the central bank, the currency may strengthen in the short term but may start weakening in the long run as rising inflation and rising interest may start hurting the growth of the economy.