The CPI measures the cost of living for typical urban consumers in the United States. It is calculated by comparing the current prices of a basket of goods and services to the prices of the same basket of goods and services in a base period. The basket of goods and services includes items like food, housing, clothing, transportation, medical care, and recreation. CPI measures the percentage change in the cost of the basket of goods and services over time.

The Bureau of Labor Statistics (BLS) is responsible for calculating the CPI. The BLS surveys thousands of retail and service establishments across the country each month to obtain price information for the basket of goods and services. The BLS then calculates the percentage change in the cost of the basket of goods and services from the base period to the current period to determine the CPI.

CPI has a significant impact on the economy, particularly on monetary policy. Central banks use CPI to set monetary policy by adjusting interest rates. If inflation is high, the central bank may increase interest rates to reduce the amount of money available in the economy and decrease spending, thus reducing inflation. On the other hand, if inflation is low, the central bank may lower interest rates to stimulate spending and increase inflation.

CPI has a significant impact on individuals and businesses. For individuals, CPI affects their purchasing power. If prices increase faster than wages, consumers will be able to buy less with their income. For businesses, CPI affects their pricing strategy. If prices of goods and services they purchase increase, businesses may raise the prices of their products to maintain profitability. Additionally, CPI affects the cost of borrowing, as interest rates are often adjusted based on inflation.