The Consumer Price Index (CPI) is an index number which is measured by the average cost of consumer goods and services bought by households is known as the consumer price index. It is abbreviated as CPI. This price index is determined by the national statistical organisations. When the population census and the National Income and Product Accounts given due importance in an economy, the Consumer Price Index is also not ignored. The monetary organisations keep a keen eye on it.
The Measure of inflation is directly proportional to CPI in a way that the percent change in the CPI clearly forecasts the inflation. Wages, salaries, pensions and regulated or contracted prices can also be indexed by using Consumer Price Index.
There are two essential categories of data which are required to compute the Consumer Price Index. This consists of the price data and the weighting data. The price data is a calculated from a sample of sales outlets in various places. This sample is calculated for a sample of goods and services and for a sample of times.
The weighting data is computed by the estimates of the shares of various forms of expenses. These expenses are calculated as the fractions of the entire expenditure which is enclosed by the index. The sampling is done in two ways. Most of the sampling is done by purposive sampling whereas some of it is done by probabilistic sampling methods. In this purposive method, the variation in sampling is generally not taken into account which greatly influences the stocks.
The Consumer Price Index can be calculated on a quarterly or monthly basis but generally it is calculated for one year. Most of the countries also compute it on yearly basis. Economic activity is clearly identified by the Consumer Price Index. The traders all over the globe keenly observe this index for forecasting the monetary activity of any given country.