The Consumer Price Index (CPI) is probably the most widely used measure of inflation. A number of federal government programs, such as Social Security benefits and civil service retirement, are tied to increases in the CPI. In addition, the personal income tax rate schedule is indexed to the CPI. Thus, the behavior of the CPI has major consequences for a significant portion of the population; but many may be unfamiliar with the details of its calculation. The "all-items" CPI is the index most often referred to and it is a composite index, a weighted average, based on the indexes for all of the goods and services whose prices are collected. Considerable effort is made to ensure that the CPI is a meaningful, reliable measure of changes in the price level. Taking quality changes into account in a price index is difficult, but BLS does attempt to make some adjustments to the CPI for quality improvements in a number of areas, including automobiles, apparel, and a number of consumer electronic goods, personal computers in particular. Since 1983 for the CPI-U and 1985 for the CPI-W, changes in the cost of home ownership have been based on the concept of "rental equivalence." For most of these cities, however, indexes are not published on a monthly basis. CPI Calculations

The CPI is an indicator of changes in the price level.
The Consumer Price Index (CPI) is perhaps the most widely reported measure of inflation. A number of federal government programs are regularly adjusted to account for changes in the CPI, such as Social Security benefits and the personal income tax rate schedule. Thus, the behavior of the CPI has important consequences for a large number of people. Many, however, may be unfamiliar with how the CPI is estimated.
For Congress, the CPI is of particular interest because of its significant effect on the federal budget. Changes in the CPI can have substantial effects on both revenues and outlays, and those changes may either reflect underlying economic conditions or result from methodological changes in the way the CPI is calculated.
The CPI is based on a number of sample surveys. One of these surveys estimates the purchasing patterns of the "typical" household to determine how that household spends its money. Another survey determines where those households shop, and a third survey collects prices on the goods and services purchased by those households.
The CPI measures the price level relative to a particular period. Currently, the CPI number for each month is a measure of the price level relative to what it was between 1982 and 1984. The CPI is available for a number of metropolitan areas but it does not allow comparisons of the cost of living in different cities.