Consumer price index (CPI)

A consumer price index is compiled by a national statistics agency. Each month it records the prices of many thousands of items, from food and fuel to rents, clothing and services, and combines them using weights that reflect how households actually spend their money. The index is set to 100 in a base period, and its percentage change over twelve months is the headline inflation rate. Versions differ by country: the UK's Office for National Statistics publishes CPI and a variant including owner-occupiers' housing costs, CPIH; the US Bureau of Labor Statistics publishes CPI; and the euro area uses the Harmonised Index of Consumer Prices (HICP).

The CPI matters well beyond the headline news. Central banks set interest rates largely with inflation targets in mind, many governments use a price index to uprate pensions, benefits and tax thresholds, and inflation-linked bonds use one to adjust their payments. It is still an average. Your own inflation rate depends on what you buy, and households that spend heavily on energy, food or rent can face noticeably different price rises. Statisticians also adjust for quality changes and for shoppers switching between products, which is one reason official figures sometimes differ from people's impressions.