Legal Definitions - CPI

CPI stands for Consumer Price Index.

The Consumer Price Index (CPI) is an economic measure that tracks the average change over time in the prices paid by urban consumers for a "market basket" of consumer goods and services. This market basket includes a wide range of items such as food, housing, apparel, transportation, medical care, recreation, and education. The CPI is a key indicator used to gauge inflation and the cost of living for the general population.

• Example 1: Rent Adjustment Clause in a Lease

  Consider a commercial lease agreement for a small business that includes a clause stating that the annual rent will be adjusted based on the change in the CPI. If the CPI increases by 3% over the year, the landlord would be entitled to raise the rent by 3% for the next year. This illustrates how the CPI is used to ensure that rental income keeps pace with the general increase in the cost of living, thereby protecting the landlord's real income from the effects of inflation.

• Example 2: Social Security Benefit Adjustments

  Each year, the U.S. Social Security Administration reviews the CPI to determine if a Cost-of-Living Adjustment (COLA) is necessary for Social Security and Supplemental Security Income (SSI) benefits. If the CPI shows a significant increase in the cost of everyday goods and services, benefits are typically increased to help retirees and other beneficiaries maintain their purchasing power. This demonstrates the CPI's role in protecting vulnerable populations from the erosion of their fixed incomes due to inflation.

• Example 3: Wage Negotiations

  During collective bargaining between a labor union and an employer, the union might cite a rising CPI as a primary reason for demanding higher wages for its members. For instance, if the CPI has increased by 4% since the last wage agreement, the union would argue that workers need at least a 4% raise just to maintain their current standard of living, as their money now buys less. This shows how the CPI provides objective data to support arguments for wage increases to offset the impact of inflation on workers' real income.