Price Index

A price index is a tool that measures the average change in prices of a specific set of goods and services over time. It helps track inflation or deflation by comparing current prices to a baseline period. For example, the Consumer Price Index (CPI) reflects changes in the cost of living by monitoring a basket of everyday items, like food and clothing. By analyzing these changes, economists and policymakers can understand economic trends, make informed decisions, and assess the purchasing power of consumers in an economy.