What does the Consumer Price Index (CPI) indicate?

The Consumer Price Index (CPI) is specifically designed to measure the average change over time in the prices that consumers pay for a basket of goods and services. This basket typically includes items such as food, clothing, housing, transportation, and healthcare, representing the purchasing habits of households. By tracking changes in prices, the CPI serves as a critical economic indicator that reflects inflation or deflation within an economy.

Using the CPI, economists and government analysts can assess how price changes affect the overall cost of living, which is vital for making economic decisions and policy formulation. While other options may hint at aspects of consumer finances, none of them directly relate to the primary function of the CPI, which focuses solely on price changes rather than revenue, household expenses, or income levels.