Consumer Price Index

The consumer price index bundles the prices of goods and services people buy regularly into a single figure. How much that figure rises is the inflation rate.

It works by fixing a basket. Food, housing, transport and communications are weighted by how much of spending each represents, and prices are surveyed monthly, so the index approximates real spending patterns.

It often diverges from what people feel, because everyone's basket differs. Without a car, falling fuel prices mean nothing; renting a small flat makes rising rent feel far larger than the index suggests.

Central banks set interest rates by this number. Most target around 2%, and a substantial overshoot prompts rate rises to bring prices down — which is why markets move sharply on CPI release days.

Core inflation, which strips out volatile food and energy, is read alongside it. Removing what jumps around with weather and oil prices gives a clearer view of the underlying trend.