What is the purpose of the consumer price index (CPI)?

The consumer price index (CPI) serves a critical function in the economy by indexing the cost of goods and services for a typical consumer. It provides a measure of the average change over time in the prices paid by consumers for a market basket of consumer goods and services. This includes essentials such as food, clothing, rent, healthcare, and transportation. By tracking these price changes, CPI allows economists and policymakers to assess inflation levels, understand purchasing power, and make informed decisions regarding economic policy and adjustments to wages or social security.

In contrast, the other options do not accurately represent the primary purpose of the CPI. For example, measuring average income, analyzing employment trends, or tracking production output focuses on different aspects of the economy that the CPI does not cover. Each of those tasks falls under different economic metrics or indices, such as income data for income measurement or gross domestic product (GDP) for production output. Hence, the correct understanding of CPI is specifically tied to its role in reflecting consumer price changes.