CPI measures the change in prices of a selected range of consumer goods. It measures the changes in retail price levels. CPI is widely used as an economic indicator. It is the most widely used measure of inflation and indicates the effectiveness and efficiency of the government's economic policy. The CPI gives the idea to the governments, businesses, and citizens an idea about the price changes and fluctuations in the economy. It acts as a controller of the actions to make informed decisions about the economy.
The business enterprises and governments use CPI to measure and adjust for inflation expectations. The CPI shows the average change in prices on a monthly basis. Many business firms use it to predict the expected price levels in the future. This enables them to adjust their production process accordingly. The adjustments enable them to adjust their present and future earrings accordingly.
Labour unions and corporations also use the CPI to achieve higher wages and other financial and physical benefits. Proper measurement of CPI ensures them to adjust their cost of living according to their benefits received. This also enables them to adjust their future standard of living accordingly. For the pensioners and other fixed income earners also, inflation helps to adjust their standard of living accordingly.
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