What is represented by the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) is a crucial economic indicator that measures the average change over time in the prices paid by urban consumers for a fixed basket of goods and services. This basket typically includes a range of items that reflect the spending habits of households, such as food, clothing, rent, and transportation. By tracking how the cost of this fixed basket changes from one period to another, the CPI provides insights into the rate of inflation or deflation affecting consumers.

The importance of the CPI lies in its ability to allow economists, policymakers, and analysts to gauge the purchasing power of consumers, assess the cost of living, and make adjustments to economic policies accordingly. Therefore, B clearly defines the essence of what the CPI measures, illustrating its role in economic analysis.