What is a consumer price index?

INFLATION HAS DOGGED societies for centuries. Attempts to measure it properly began in earnest in the 20th century. In 1914 the British government calculated a “working-class cost of living index” to help guide adjustments to the wages of essential workers during the first world war. America’s Bureau of Labour Statistics (BLS) published inflation measures for 32 cities in 1919, and followed up with a national index in 1921. How do such consumer price indices work—and how have they changed over the years?

Early approaches involved establishing the composition of a typical shopping basket, and then surveying shops to see how the prices of the items moved from month to month, or year to year. The change in each item’s price was multiplied by its weight in the basket to create an inflation average for all items. The original aim was to work out how much the cost of living had changed over a given period.