Consumer Price Index
The Consumer Price Index (CPI) is a measure of the average change
over time in the prices paid by urban consumers for a market basket
of consumer goods and services. Indexes are available for the U.S.
and various geographic areas. Average price data for select utility,
automotive fuel, and food items are also available.
In economics, inflation is a sustained increase in the general price
level of goods and services in an economy over a period of time. When
the general price level rises, each unit of currency buys fewer goods and
services; consequently, inflation reflects a reduction in the purchasing
power per unit of money - a loss of real value in the medium of exchange and
unit of account within the economy. A chief measure of price inflation is
the inflation rate, the annualized percentage change in a general price
index, usually the consumer price index, over time.
Inflation affects economies in various positive and negative ways. The
negative effects of inflation include an increase in the opportunity cost of
holding money, uncertainty over future inflation which may discourage
investment and savings, and if inflation were rapid enough, shortages of
goods as consumers begin hoarding out of concern that prices will increase
in the future. Positive effects include reducing unemployment due to nominal
wage rigidity, allowing the central bank more leeway in carrying out
monetary policy, encouraging loans and investment instead of money hoarding,
and avoiding the inefficiencies associated with deflation. [Source: