This visualisation tracks the Consumer Price Index (CPI) for the U.S. economy. The Consumer Price Index is a measure of the prices paid by people living in cities for a basket of goods and services. It tells us how prices change over time and helps us understand inflation. The most common way to look at inflation is by comparing the percentage change in prices from one year to another.

The CPI reflects the buying habits of urban consumers and covers around 88 percent of the population, including various groups like wage earners, self-employed individuals, and retirees.

The index is based on prices for items like food, clothing, housing, transportation, and services. Data is collected monthly from thousands of housing units and retail establishments across different urban areas. To calculate the index, changes in prices are averaged with weights based on their importance in people's spending.

The CPI helps us identify periods of inflation (rising prices) and deflation (falling prices). However, since it includes volatile food and oil prices, it may not always be a reliable measure of inflation and deflation. To get a more accurate measure, economists often use the core CPI, which excludes food and energy prices.

In summary, the CPI is a useful tool for understanding price changes over time, but it has limitations and should be interpreted carefully.

Key Takeaways

CPI is one of the important indicators used to track the overall health of the economy. While a moderate CPI is important for growing and healthy economy, extremely high (Hyper Inflation or Stagflagtion) or low CPI (Deflation) is not good for the economy and the stock prices in general. An investor can track the Year on Year(YoY) change in percentage of CPI to understand the health of the economy and position their bets in asset classes that benefit from high, medium or low inflation.