A Consumer Price Index (CPI) is a statistical measure that tracks the average change over time in the prices paid by households for a fixed “market basket” of consumer goods and services, such as food, housing, and clothing. It is calculated as a weighted average of these prices, with weights reflecting how much households spend on each item, and the basket is periodically updated to match changing consumption habits. Governments and central banks use the CPI as a primary gauge of inflation, often computing it monthly, and it serves to adjust wages, pensions, and prices, as well as to compare inflation across countries. However, the CPI is an approximation—not a perfect measure of the true cost of living—because it uses a fixed-weight formula and may not fully capture quality changes or substitutions. Notably, the U.S. and Sweden design their indices to approximate a “true cost of living” (constant utility) concept, while most European countries take a more pragmatic approach. Despite its limitations, the CPI remains one of the most closely watched economic statistics worldwide.