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What is CPI and why is it important to consumers? what is included in CPI calculation?

What is CPI and why is it important to consumers? what is included in CPI calculation?

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1.A consumer price index (CPI) measures changes in the price level of market basket of consumer goods and services which are used by households. A base year is selected whose CPI is 100. The market basket for the base year commodities is calculated by multiplying the price with quantity. This measure is used to find out the inflation in other years. This is an important for formulating the fiscal policy. The Fed looks at the inflation and announces the interest rates. CPI is published by the Bureau of Labor Statistics, U.S. Department of Labor.

The CPI is used to find out the real wages, how much money can buy now.

CPI= Cost of CPI market basket at current year prices

       ___________________________________________ x100

Cost of CPI market basket at base year prices

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