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  1. Purchasing power
  2. Inflation

Consumer Price Index (CPI) - What is the Consumer Price Index?

The Consumer Price Index (CPI) tracks the cost of certain goods and services to evaluate the current prices and help measure inflation

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The Consumer Price Index is measured in a regular, standard way in order to determine levels of inflation in a country. In the UK, it was published in 1996, and the Monetary Policy Committee of the Bank of England undertakes the role of attempting to manage the inflation rates.

What is measured for the CPI?

In order to determine the rate of inflation, certain products and services are measured to understand the relative purchasing power and how this has changed over time.

CPIs can either rise or fall according to the economy and act almost as a barometer for pricing. The prices of the goods and services that are measured under the CPI are standardised indicators of economic changes.

The measurement is based on the percentage of change that is tracked over time. This allows the inflation to be easily determined over any set period of time by examining the change between two varying sets of prices.

For Example:

A popular explanation for understanding the measurements covered by the CPI is that of a shopping basket from a typical day of stocking up and basic outings such as a trip to the cinema.

The CPI would measure, for example, how much a full basket of typical daily goods such as milk, bread, butter, ready-made meals would cost on a given day. It would also take into account the cost of your cinema ticket.

The total cost of this ‘basket’ of products and services could then be compared to the same ‘basket’ from a previous date. The percentage of difference between the prices of each of the items would provide the inflation rate.

How are CPIs used?

The indices are used across a broad range of sectors - from governmental to corporate, and even at the individual level, the results of the indices have an impact on the cost of living and doing business in the UK.

The indices are usually updated monthly, clearly tracking the changes in prices of key goods and services.