What Is a Consumer Price Index (CPI)?

Primarily speaking, a Consumer Price Index (or CPI) is a type of index where the prices of a basket of goods and services are tracked to gain insights into market segments. CPI is designed to track the prices of consumer goods and services that the average consumer is expected to spend on and should be able to afford. It is a benchmark for measuring economic developments, specifically the impact of inflation or deflation. This is essential as governments can gather insights on their monetary policy decisions and thereafter tweak how much should be given to those with subsidized incomes.

But beyond measuring the effectiveness of the central government’s economic policy, the CPI also gives businesses and citizens information about the price changes in the economy, which then helps them make informed decisions. The CPI statistics cover a wide range of individuals, including professionals, self-employed, the unemployed, and more. Some of the major groups of the CPI include housing, apparel, education, and communication. While the CPI is mostly effective, it often fails to capture regional variations in prices, and it also assumes that all buying patterns are homogenous.

Author: Sam Kazemian is the Founder of Frax, the world’s first fractional algorithmic stablecoin that is partially backed by collateral and stabilized algorithmically. Frax is open-source and permissionless, bringing a truly trustless, scalable, and stable asset to the future of decentralized finance. Kazemian brings a wealth of experience as a leading blockchain entrepreneur and crypto enthusiast, as the co-founder of the blockchain-based knowledge base, Everipedia.