ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The Consumer Price Index (CPI) is an index that is often used to measure inflation by tracking the changes over time in the prices paid by consumers for a basket of goods and services.

Detailed explanation-2: -The “best” measure of inflation depends on the intended use of the data. The CPI is generally the best measure for adjusting payments to consumers when the intent is to allow consumers to purchase at today’s prices, a market basket of goods and services equivalent to one that they could purchase in an earlier period.

Detailed explanation-3: -It may constitute a relatively good measure of price changes in the specific goods in its basket. However, one limitation of the CPI is that the consumer goods it considers do not represent all production or consumption in the economy. Therefore, as a basic economic barometer, the CPI is inherently flawed.

Detailed explanation-4: -Two different price indexes are popular for measuring inflation: the consumer price index (CPI) from the Bureau of Labor Statistics and the personal consumption expenditures price index (PCE) from the Bureau of Economic Analysis.