Price index

A price index is the price of a group of products expressed as a percentage of the price of a comparable group of products at an earlier date. The Consumer Price Index (CPI), which is the most widely-used price index, is the price of the "basket" of products that is purchased by the typical consumer, expressed as a price charged for a comparable basket at a stated base date. The CPI provides an indication of changes in the cost of living and it is commonly used as a factor to "index" past payments in order to maintain their purchasing power. It is also used as a divisor, or "deflator", that is applied to a percentage increase of a quantity measured in monetary units, such as dollars, in order to estimate its percentage had it been measured in physical units, such as gallons. Price indexes are also available for a variety of other prices including those of factory inputs and outputs, commodities and housing.