In this episode, we decode the Consumer Price Index (CPI), a critical statistical estimate used to track the price levels of goods and services purchased by households. We explain how this "market basket" of items is updated to reflect consumer spending habits and serves as a primary tool for measuring inflation and adjusting the real value of wages and pensions,.

Key topics covered include:

• How it Works: The calculation of the CPI through weighted averages of sub-indices, covering categories like food, housing, and clothing,.
• The Housing Debate: The controversy surrounding "owner-occupiers" and whether housing costs should be measured by rental equivalents, transaction prices, or debt profiles,,.
• U.S. Indices: The difference between the CPI-U (for all urban consumers) and the CPI-W (for wage earners), and why the CPI-W determines Social Security cost-of-living adjustments despite potential conflicts regarding healthcare costs for the elderly,.
• Alternative Measures: A look at the "Chained CPI," which accounts for substitution effects when prices rise, and the Personal Consumption Expenditures (PCE) price index, which is often preferred by the Federal Reserve,.