Economics Consumer Price Index Cpi Questions
The Consumer Price Index (CPI) has a direct impact on wage growth. The CPI measures the average change in prices of goods and services over time, reflecting inflation or deflation in an economy. When the CPI increases, it indicates a rise in the overall cost of living. As a result, wages need to increase to maintain the purchasing power of individuals. This is known as cost-of-living adjustments (COLA) or wage indexation. Conversely, if the CPI decreases, it suggests a decrease in the cost of living, which may lead to lower wage growth or even wage cuts. Therefore, the CPI serves as a crucial factor in determining wage adjustments and ensuring that wages keep up with changes in the cost of living.