consumer price index

Yearly index of the cost of goods and services to the consumer needed for an average standard of living. See also producer price index.

In the UK, the Consumer Prices Index (formerly known as the Harmonized Index of Consumer Prices or HICP), is the main UK domestic measure of inflation for macroeconomic purposes. HICPs are calculated in each member state of the European Union for the purposes of European comparison. The UK Retail Prices Index (RPI) is a general purpose measure of inflation. The government uses it for uprating pensions, state benefits, and index-linked gilts. It is also used in private contracts (for uprating maintenance payments and housing rents) and in wage bargaining.

The US Department of Labor reforms its consumer price index (CPI), the most widely used measure of inflation, periodically, establishing a base year at 100. Prices 20% higher than those in the base year would thus be expressed as 120. The index is calculated on the spending habits of salaried employees, wage earners, and retired and unemployed persons in 85 metropolitan areas. The income of almost half the US population is related to the CPI through collective bargaining agreements, alimony, rent, and Social Security payments, all of which are linked to changes in the cost of living. The items making up the ‘market basket’ of typical consumer purchases are also revised periodically, reflecting changes in consumer spending habits.