What does the Consumer Price Index (CPI) measure?

The Consumer Price Index (CPI) is a vital economic indicator that measures the average price change over time for a fixed basket of goods and services typically purchased by households. It reflects how the costs of essential items like food, housing, clothing, and transportation evolve, providing insight into inflation and the cost of living over time. By monitoring these price changes, the CPI helps assess the economic well-being of consumers and informs government policy, economic strategy, and wage negotiations.

The other options do not accurately describe the CPI. The total cost of living adjustments could involve a variety of considerations beyond just the changes in prices of goods and services, such as wage increases or social benefits. The unemployment rate is related to labor markets, tracking job availability and employment levels, rather than price changes. Finally, productivity levels focus on the output of goods and services relative to inputs in the economy, which is distinct from measuring price changes in consumer goods.