A consumer price index (CPI) is a measure estimating the average cost of all consumer goods and services purchased by a typical consumer.
Changes in the CPI comprise one of the indices computed by many national statistical agencies. Changes in CPI are used to assess price changes in the cost of living, specifically when it comes to estimating inflation. A significant rise in CPI, even for just a short period of time, is enough to warn of a coming periods of inflation. On the other hand, a significant dip in CPI also means a period of deflation.
The CPI measures the price changes of goods and services like transportation, food and medical care from one period to the next within the same area. The prices are then consolidated and averaged, with weight given to each good and service according to importance.
The CPI is usually computed every year or every quarter, depending on the financial policies of the country. Note that since it is the weighted average of consumer products and goods that are computed, it takes time to consolidate and process the information used for weighting. This is the reason why the CPI isn’t measured more often.