Consumer Price Index

II. Consumer Price Index
A common method used to measure inflation is through the use of the Consumer Price Index, commonly referred to as CPI. CPI is a measure of the average price of goods commonly bought by households. By comparing the CPI, and therefore the general price level at different times we can easily measure the rate of inflation. For example, if CPI in January is 100, and in January of the next year is 110, we can determine the rate of inflation by subtracting 110-100, dividing the resulting 10 by 100, and multiplying the results by 100. This gives us an inflation rate of 10% from year 1 to year 2.
How CPI is collected is an important factor that will influence the accuracy of the inflation rates that we determine. The CP...