4.6.2—CPI and price level measurement

The consumer price index (CPI) estimates changes in the price of a representative basket of goods and services. Each item is weighted according to its share of household spending, then the basket cost is compared with a base period.

Weights and the basket are updated because spending patterns change. Quality changes, new products, substitution and differences between households make CPI an estimate rather than a universal personal inflation rate.

If food has a larger basket weight than cinema tickets, a 10% food-price rise contributes more to the index than a 10% cinema-price rise, even if the ticket change is more noticeable to one household.

The CPI is a price-level index, not an index of quantities or wages; an index value of 125 means the basket costs 25% more than in the base period.