Price Index Definition

A price index is a measure of the average change in prices over time. The most common use of a price index is to measure inflation. Inflation is the rate at which the prices of goods and services rise over time. The Consumer Price Index (CPI) is the most widely used measure of inflation.

The CPI measures the average change in prices over time for a basket of goods and services that are commonly purchased by households. The CPI basket includes items such as food, clothing, shelter, transportation, and medical care. The CPI is released monthly by the Bureau of Labor Statistics.

The CPI can be used to measure inflation in two ways: the absolute value of the CPI and the year-over-year change in the CPI. The absolute value of the CPI measures how much prices have changed since the base year. The year-over-year change in the CPI measures how much prices have changed over the past 12 months.