CPI = (cost of basket in current period / cost of same basket in base period) × 100
What it is
The Consumer Price Index tracks what a basket of everyday goods and services costs over time — groceries, rent, fuel, transit fares, haircuts and hundreds of other items a typical household buys. It is an index, not a percentage: it is set to 100 in a chosen base period, and later readings show the basket's cost relative to that starting point. The widely quoted "inflation rate" is not the CPI itself but the percentage change in the CPI, usually measured against the same month one year earlier. In Canada and the US, the national statistical agency publishes it monthly on a pre-announced schedule.
Why it matters
CPI is the most watched gauge of whether money is losing purchasing power, and it feeds into things a beginner will encounter everywhere. Central banks reference consumer price inflation when framing monetary policy. Bond investors care because a bond's fixed coupon buys less in real terms when prices rise faster, and expected inflation is embedded in the yields quoted on longer-dated debt. Many contracts, pensions, tax brackets and government benefits are indexed to a CPI measure, so the published figure carries direct legal and financial consequences. Understanding that CPI is a level and inflation is its rate of change prevents a very common misreading of financial headlines.
How it's calculated
A statistical agency defines a representative basket of goods and services — housing, food, transport, healthcare, recreation — each weighted by how much of a typical household's spending it absorbs, based on expenditure surveys. Price collectors gather prices for specific items across regions and outlets each month. The weighted cost of the basket in the current period is divided by its cost in a designated base period and multiplied by 100, giving an index level (the base period equals 100 by construction). Agencies adjust for quality changes and substitution, publish both raw and seasonally adjusted series, and revisit basket weights periodically as spending habits shift.
Cross-border note. Canada and the US publish separate, non-interchangeable indexes. Statistics Canada publishes the Canadian CPI; the US Bureau of Labor Statistics publishes the US CPI, with CPI-U (all urban consumers) most widely cited. The baskets, weights and base periods differ, so the index levels cannot be compared across the border — only their percentage changes are loosely comparable, and even then basket definitions differ.
FAQ
Is CPI the same thing as the inflation rate?
No, and this is the most common mix-up. CPI is an index — a level that means something only in relation to its base period, which equals 100 by construction. The inflation rate is the percentage change in that index, usually measured against the same month a year earlier. So a headline quoting an inflation percentage describes the change in CPI, not the CPI level itself. A falling inflation rate means prices are climbing more slowly, not that prices are coming down.
What is "core" CPI and why does it exclude food and energy?
Core CPI strips out the most volatile components — commonly food and energy in US practice. The Bank of Canada's preferred core measures, trimmed-mean and median CPI, are calculated by Statistics Canada. A gasoline or produce spike can swing the headline number one month and reverse it the next, obscuring the slower trend. Core is not more "real" than headline — people do buy food and fuel — it is just less noisy. Both are published, and analysts watch both.
Why does official CPI sometimes not match what I see at the store?
CPI measures an averaged basket for a broad population, not any one household's spending. If spending skews toward categories rising faster than average — rent in a particular city, say — personal experience can differ from the national figure. Agencies also adjust for quality changes, so if a product gets meaningfully better while its price rises, part of that increase may be treated as added value rather than inflation.