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The CPI full form is Consumer Price Index. CPI is also known as a market basket. It is an index that is used to determine retail inflation in the country. CPI is considered a pivotal tool for the determination of inflation and deflation. The value of CPI is used to detect the fluctuations in prices of goods and services purchased by the consumer. Thus, CPI traces the changes in prices at the consumer level, whereas, WPI (Wholesale Price Index) traces the changes in price at the producer level, and both are different from each other.
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What is CPI?
As you know the CPI full form, it is the index that measures inflation in the market by calculating the cost of goods and services. It also calculates the cost of living in a country. CPI is the reference index that helps in understanding the actual value of wages, money, and goods purchasing power of any currency.
In other words, CPI is the average fluctuation in prices paid by the consumers for the market basket of goods and services over a period.
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CPI Full Form: How To Calculate?
CPI refers to the price of goods and services, as well as changes in the basket over a period of time. It is used to study the trends in prices of day-to-day household goods. CPI is generally used by policymakers and economists as they are more involved in calculating inflation with respect to the GDP deflator.
The steps involved in the calculation of CPI are listed below:
- Reference market basket of goods and services.
- Calculate the cost of the reference basket
- Then, calculate the CPI
- Calculate the rate of inflation
Formula to calculate CPI:
CPI= [Cost of the market basket in the current year/Cost of the market basket in the base year]x 100
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