Consumer Price Index.

In plain English

The Consumer Price Index, or CPI, tracks the average change over time in the prices urban households pay for a fixed basket of goods and services, from groceries and rent to gas and medical care. The Bureau of Labor Statistics collects thousands of prices every month and rolls them into one index number. When that number rises, the cost of living is rising. The percentage change in the CPI from a year earlier is the inflation rate most news reports quote.

01Why it matters

CPI is the number that decides whether your raise is a real raise. If your pay goes up 3 percent but CPI rose 4 percent over the same year, your buying power actually fell. It also moves real dollars: Social Security cost-of-living adjustments, many tax bracket updates, and some wage contracts are tied to it.

02The math, step by step

Say a basket of goods cost $100 last year and the same basket costs $103 this year. CPI rose 3 percent, so the inflation rate is 3 percent. A worker who got a 2 percent raise over that year can buy slightly less than before, because prices climbed faster than the paycheck did.

03What this is NOT

04Receipts

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