The CPI, or Consumer Price Index, is one of the most widely used measures of inflation by investors. Created by analyzing the price of a certain basket of widely used, urban consumer goods over time with relation to a base time, the CPI can show either monthly or yearly price fluctuations. The CPI for specific cities, types of goods, and by wage-earners can also be calculated. Complete CPI data is released monthly by the US Bureau of Labor Statistics.
Understanding the CPI is vitally important not only for investors, but also for people saving for retirement, or taking out loans on a mortgage or education. If the CPI rises, showing a positive percent increase in inflation, goods will become more expensive in the future, thereby decreasing the purchasing power of savings and increasing the amount necessary to pay back on loans of all kinds.
Considered a cost-of-living index, however components like food and energy consumption can fluctuate widely by month, so monitoring the core CPI (without including either of these factors) is often more stable. However, both the full CPI and the core CPI track each other when graphed over the long-run.
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