The US Bureau of Labor Statistics explains CPI as “The Consumer Price Index (CPI) measures the change in prices paid by consumers for goods and services. The CPI reflects spending patterns for each of two population groups: all urban consumers and urban wage earners and clerical workers.”
There is a whole big para we left. Essentially, what it means is:
CPI is a study that understands the price change of multiple commodities to calculate inflation. In order to measure the CPI, the US BIS put various economists in charge of collecting the change in price of most goods and services used by consumers. These experts survey households for a fixed list of items, including food, apparel, electronics, etc, which helps the government calculate inflation.
To illustrate this: Let’s say, an apple that used to cost $1 on January 12th is now $1.5 on February 11th. So, the surveyor will calculate the price change over a period of one month to understand the inflation along with the buying pattern of consumers and their behavior.
An important point to understand here is: higher the CPI, costlier the goods and services.
The recent report of CPI by US BIS shows a 7.5% increase in the period of 12 months ending January. It simply means, an Apple is going to cost 7.5% more than what it was 12 months ago.
It all boils down to the fact that the purchasing power of USD is reducing, which is not a hidden fact if we look at the below chart from FRED:
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