Consumer price index (CPI)

A statistical measure of price change compiled by a national statistics agency. Prices are collected for a basket of goods and services chosen to represent household spending, each item weighted by how much of a typical budget it accounts for, and the total is expressed as an index against a base period. The headline reading covers the whole basket. A core reading strips out food and energy, on the reasoning that those two move for reasons unrelated to underlying price pressure.

It is published on a fixed calendar, monthly in most economies, and reported both against the previous month and against the same month a year earlier. Because a consensus expectation is published in advance and priced by markets before release, the reaction in currencies and bonds comes from the gap between the reading and that expectation rather than from the level itself. The channel is the central bank: an inflation reading changes what the policy rate is expected to do, and that expectation is what the currency reprices against.

Several things are commonly misread. It is not the only inflation measure and is not everywhere the one policy is set against, since the Federal Reserve's preferred gauge is a different index and producer prices are measured separately. It describes an average basket rather than any household's actual experience, so a reading can fall while a particular bill rises. And its methods, particularly the substitution assumption and quality adjustment, are the subject of a long standing and unresolved argument among economists about whether the measure overstates or understates the change in the cost of living.