What role does the CPI play in economic analysis?

The Consumer Price Index (CPI) plays a crucial role in economic analysis by reflecting changes in the cost of living over time. It measures the average price level of a basket of consumer goods and services that households typically purchase. By tracking how the prices of these items fluctuate, the CPI provides insight into inflation or deflation trends, allowing economists, policymakers, and businesses to understand how purchasing power and living standards change over time.

Moreover, the CPI is instrumental in informing adjustments in income payments, such as social security benefits, and can be used by central banks when formulating monetary policy. By understanding the changing costs associated with everyday living expenses, stakeholders can make informed decisions based on economic conditions.

The other options do not accurately represent the primary purpose of the CPI; it does not measure total wealth, evaluate employment rates, or directly predict future economic trends, although changes indicated by the CPI may influence future economic forecasts.