Which index measures prices of an assortment of products to show the effect of inflation on purchasing power?

The Consumer Price Index (CPI) is a vital economic indicator used to measure the average change over time in the prices paid by consumers for a basket of goods and services. This basket typically includes categories such as food, clothing, rent, and medical care, reflecting the spending habits of a typical household. By monitoring how the prices of these items fluctuate, the CPI provides insights into the overall inflation rate in an economy and illustrates how purchasing power may change over time.

The CPI is particularly significant because it helps policymakers assess inflation, guiding decisions about interest rates and economic policy. For individuals and businesses, understanding changes in the CPI can inform budgeting and investment strategies, as it directly impacts the cost of living and purchasing power.

Other indexes, like the Producer Price Index, focus on prices at the wholesale level, indicating how much producers are charging for their products, which can precede changes in consumer prices but does not directly measure the cost of living for consumers. Similarly, the Retail Price Index, while also related to consumer prices, can include specific items under a different context, and the Price Level Index does not specifically target inflation effects on everyday purchasing decisions. Thus, the Consumer Price Index stands out as the primary measure used to reflect the purchasing power of consumers in