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.

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.