Difference Between CPI and Inflation

calendarJan 25, 2023 · 2 min read  ·
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inflationCPI vs Inflation

Inflation and Consumer Price Index (CPI) have no difference as the latter is so closely related to the former. Consumer Price Index is a mean to calculate inflation. So, is there any difference between inflation and Consumer price Index? One can only come across minute difference between the two, as CPI does not stand alone without inflation.

What is inflation? It is an increase of the price of goods and services in general terms. When the inflation is high, people have to spend more money for the same services and goods that they were previously able to get at a low price. Inflation is measured in many ways and Consumer Price Index is the most common method used. The other methods used for calculating inflation include Gross Domestic Product Deflater, Cost-of-living indices, Producer price indices (PPIs), Commodity price indices and Core price indices.

The Consumer Price Index is a measure of the inflation as experienced by people in their day-to-day life. It is a measure related to the consumer’s daily expenses. Consumer Price Index is also referred to as the cost of living index. In real terms, CPI or Consumer Price Index is the measure of the average price by which a consumer buys the household things.

While inflation is talked in a larger sense, the CPI, which is a measure for calculating inflation, is talked in a smaller level. Inflation always has a wider reach whereas CPI is based on the consumer product indices. Sometimes, Consumer Price Index will not give the actual current inflation, as it is only a part of the whole process.

Well, one can hardly find any difference between inflation and Consumer Price Index as they are very much related. CPI is just a part of inflation just like GDP, Cost-of-living indices, Producer price indices (PPIs), Commodity price indices and Core price indices.

Summary:
1.Inflation is an increase of the price of goods and services in general terms. The Consumer Price Index is a measure of the inflation as experienced by people in their day-to-day life.
2. Inflation is measured in many ways and Consumer Price Index is the most common method used.
3. When the inflation is high, people have to spend more money for the same services and goods that they were previously able to get at a low price.
4. Inflation always has a wider reach whereas CPI is based on the consumer product indices.


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