Which economic indicator is commonly used to measure inflation?

The Consumer Price Index (CPI) is a widely recognized economic indicator used to measure inflation. It tracks the average change in prices over time that consumers pay for a basket of goods and services. This basket includes various items such as food, clothing, transportation, and medical care, which reflects the purchasing habits of households. By monitoring the changes in the price level of this basket, CPI provides insight into the cost of living and overall price trends in the economy.

When the CPI rises, it indicates that prices are increasing, which is a direct sign of inflation. Conversely, a stable or declining CPI can suggest a lower rate of inflation or deflation. The use of CPI is crucial for policymakers, businesses, and consumers, as it influences economic decision-making.

Other indicators like Gross Domestic Product (GDP), the unemployment rate, and the balance of trade play important roles in the economy, but they do not specifically measure inflation itself. GDP reflects overall economic output, the unemployment rate indicates labor market health, and the balance of trade assesses the difference between a country's exports and imports. While these factors can influence inflation, they are not direct measures of inflation like the CPI.