The Consumer Price Index (CPI) is a ratio that measures the variation of the prices of a basket of goods and services in a specific place during a certain period of time. The IPC values a set of products called base, with which the increase in the cost of living can be determined.
This index is used to measure the impact of inflation on the cost of living increase. To do this, it selects specific products that resemble the consumption of a family, such as certain foods, footwear and textiles, fuels, transportation, services… and monitors their prices during a limited and specific time, which is usually quarterly and annual
They are products that are acquired on a regular basis and that represent the main expenditure of families in their consumption. Thus, the CPI measures the changes in the prices of this closed basket of products and services. If during the analysis this index is positive we will say that the CPI has grown, that is, that the cost of living has increased since the products of basic consumption have suffered an increase in their prices and vice versa.
Emphasize that the CPI serves to collect increases in prices and the cost of living, therefore, sometimes is often confused with inflation, although it is true that the CPI, having a wide variety of products from different sectors, can pick up inflation to a large extent, that is, the increase in prices.
The IPC must have two fundamental features to make it true:
- It must be representative and reliable so that a representative and weighted sample of all the products and services of the main consumers is selected.
- It must be measurable and comparable in time and space, that is, it can be compared and compared with the same measure in different time segments and also be similar to the rest of the countries.
As evidence of the above, the Harmonized CPI (IPCA) is used, which is used by choosing the same products and services in all countries for the same type of population, since the normal CPI varies according to the consumption patterns of the different countries, and it is more difficult to compare them.