What is the primary measure of inflation?

The Consumer Price Index (CPI) serves as the primary measure of inflation because it specifically tracks changes in the price level of a basket of consumer goods and services over time. By measuring the average change in prices that consumers pay, the CPI provides a clear indicator of how inflation affects the purchasing power of the currency. This index is essential for economic policy-making, as it helps central banks and governments make informed decisions regarding interest rates and other economic strategies.

While the Retail Price Index (RPI) is also a measure of inflation, it typically includes housing costs and has different components, making it less preferred for certain economic analyses. Gross Domestic Product (GDP) measures the overall economic output of a country and isn't a direct measure of inflation, and Purchasing Power Parity (PPP) is more about comparing the purchasing power of different countries rather than tracking inflation directly within one economy. Therefore, the CPI is the most appropriate choice for assessing inflation.