Cost of Living Index/Retail Price Index/Consumer Price Index (CPI)
Cost of Living Index/Retail Price Index/Consumer Price Index (CPI) : This is a statistical mechanism which is used to measure changes in the general level of prices of consumer goods and services purchased by private households. An economic tool, it determines the effect of changes in prices on the disposable income of the average household, as well as how changes in the cost of living can affect wages and other negotiated prices. A statistical representation of the changes in prices, construction of the CPI entails determining the "basket of goods" or "market basket", affixing relative weights to the various expenditure groupings to reflect spending levels, identification of a base period to facilitate comparisons, and the calculation of movements in prices from one period to the other in terms of the base period. The "basket of goods" attempts to cover the goods and services people buy for a living, covering such items as food, clothing, rent, furniture, fuel, medicines, transportation, entertainment, etc. These items are then divided into sub- components and assigned to a major expenditure group
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