Difference Between CPI and Inflation

Both the CPI (Consumer Price Index) and inflation are price indicators. The difference between CPI and inflation is due to the number of products that each index takes into account to measure price increases.

In other words, on many occasions we have heard that inflation has risen or fallen based on the CPI data, and this is not always correct. While the CPI selects a specific and closed consumption basket of goods and services to measure and evaluate price increases, inflation is the general rise in prices in an economy. Although given the logical difficulty of calculating the price variation of all goods and services, the CPI is often used as an estimator of inflation.

While the CPI collects a representative sample of various goods and services that we usually use to subsist (food, textiles, transport, fuel...), in order to assess the impact that rising prices have on the cost of living; Inflation is the detailed calculation of all the prices of goods and services in a territory during a given time.

The difference and similarity between the two is due to the fact that the CPI selects a very representative and weighted consumption sample from almost all the sectors with which people have contact and need to consume, hence it is similar, but it will depend on the importance of each product inside a closed basket.

Still there are a few more differences. For example, the CPI does not include the analysis of the prices of business intermediate consumption or exported products and is not taken into account to calculate magnitudes in the national accounts of a country, since inflation is a macroeconomic measure and the CPI is not. However, the CPI is the tool that is used (it is considered valid) for the annual salary review, to determine the increase in the cost of living, or for example for rent review. It is also used to update debts or sanctions.