What is CPI?
The Consumer Price Index (CPI) determines the overall increase in prices for goods consumed (a.k.a. consumer goods) in a given economy.
On a wide-scale, CPI is a calculation performed by the U.S. Bureau of Labor Statistics (BLS) and is calculated on a monthly basis. They utilize the following formula:
To describe this calculation in words, we are looking at the prices of a basket of goods today...
...and dividing them by the price of the same basket of goods in a previous period.
Doing so gives us a ratio that describes the increase in the prices of these goods and services.
CPI has an index of 100
Why do we multiply the result of this by 100?
Because the base, or starting point, for CPI is at 100.
The base / starting point / index for CPI is 100.
If a basket of consumer goods does not change from one year to the next, then its CPI would remain at 100.