What is the difference between CPI and Inflation?

CPI, which simply stands for Consumer Price Index, is closely related to inflation. Consumer Price Index actually refers to a means or method of calculating inflation. First of all, what is inflation? Inflation can simply be defined as the persistent rise in the price of particular goods or services, or a general increase of goods and services in the public market. Inflation occurs in such a way that you spend more to purchase a particular same products and services.

However, there are several methods through which you can calculate inflation. These methods include core price indices, producer price indices, gross domestic product deflator, commodity price indices, and cost of living indices. The probably the most used method is the cost of living indices, which is also known as the CPI. It determines the level of inflation by taking the masses day-to-day expenses into measurement. It is a measure of price by which a consumer makes his personal purchase on an average level.

The CPI or the consumer price index is the measurement of the average change in prices paid by consumer goods and services. This process is measured over time, over various geographic areas, and a variety of items such as utilities, gasoline, and food. There are three CPI terms, including CPI-U, CPI-W, and C-CPI-U.

These three measures the average change in prices paid by consumers, and specific categories are figured over two years and some monthly. Also, some are figured for specific geographic regions, and some are calculated nationally. Inflation is a term that is used when we have a general increase in prices of goods and services and a decrease in the purchasing value of money. If inflation is low and stable, it can be consistent with economic growth; however, if inflation goes up unexpectedly, it is terrible for the economy. High prices and no funds to make purchases play havoc with business and decreases consumer purchasing power.