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The consumer price index (CPI) measures factors in the economy, including inflation. The CPI is used to track changes in the prices of goods and services, which can indicate inflation. Monitoring inflation and CPI is important for stakeholders to compare assets and determine changes in the economy.
The consumer price index (CPI) is a type of economic instrument used for the purpose of measuring the factors declared in the economy at a particular time. The relationship between inflation and the CPI arises from the use of the IPI as a tool for measuring the level of inflation in a given economy. In general, inflation is used to refer to any increase over time in a constant number of goods, which will be tracked over a set period, ranging from a monthly calculation of that increase to an annual calculation of it. Regarding the connection between inflation and CPI, the inflation rate for the factors under consideration will be included in the IPI measurement report at the end of each month, and a general annual calculation for each year’s inflation rate will be included at the end . The importance of measuring the rate of inflation and CPI is the fact that such measurement allows stakeholders such as economists, businessmen, students and various governments to compare declared assets as a way to determine what changes may have occurred in them .
An example of this link between inflation and the CPI can be demonstrated by considering a number of random items in a hypothetical basket. Assuming these include various foodstuffs, clothing materials, services and other types of goods, at the end of each month the different prices of the items will be collected and compared with the previous month as a means of evaluating any type of increase in the prices of the goods. Where prices may have risen, this will indicate rising inflation. The exact percentage of the inflation level will be determined by subtracting the previous CPI figure from the current one. If the difference between the two figures equals a 2% increase in inflation, that will act as a guide to the direction the overall economy is heading.
The same is also true when the CPI level decreases resulting in a reduction in the level of inflation. Inflation and CPI measurements can also be used to determine the annual rate of increase or decrease in inflation. One reason we need to monitor changes in inflation and the CPI is the relationship the two concepts have to the currency’s ability to buy the basket of goods. Where inflation is higher, more money will be needed to purchase real estate, while less will serve the same purpose as inflation decreases.
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