__The Consumer Price Index Definition__**Consumer Price Index (CPI):**measures changes in the price level of a fixed basket of consumer goods and services.

**Properties of CPI:**

- Is equal to 100 at the
*reference base period*. - If $CPI$ > 100, then prices are higher than the ones in the base year.
- If $CPI$ < 100, then prices are lower than the ones in the base year.
- $CPI$ - 100 gives the percent increase/decrease in the average of the prices of the basket of consumer goods and services.

__Calculating the $CPI$__To calculate $CPI$, we use the following formula

To calculate the cost of a basket of two goods, we use the following formula

Where:

$p_{x}$ = price of good $x$

$q_{x}$ = quantity of good $x$

$p_{y}$ = quantity of good $y$

$q_{x}$ = quantity of good $y$

__Measuring Inflation Rate with CPI__To calculate the inflation rate, we use the following formula: