Consumer price index CPI for short. If you switched on the tv and heard on the news that the CPI in Canada was two point one percent, what does that mean? In a nutshell? It means the Canadian consumers paid two point one percent more than in the previous year for the goods and services included in the CPI basket. Although prices of goods and services rise and fall over time, when prices change to dramatically, they can have negative effects on an economy. In order to tell if an economy is experiencing inflation, deflation, or stagflation, we use the CPI as a gauge of the prices of goods and services. Believe it or not, when the department of labor, as bureau of labor statistics releases the CPI data monthly, the cps results are widely anticipated and watched. Who would eagerly await the results? You might ask, well, the CPI plays a role for many key financial decision makers, including individual investors, the bank of Canada in Canada, and the Federal Reserve in the US. The CPI helps the bank of Canada forecast the interest rate policy and other decisions of major banks and corporations. I mentioned the CPI basket before, and now I want to expand on what this basket is and how we get the information. The base year market basket, which makes up the CPI, comes from detailed expenditure information collected from surveys of thousands of families. The information is not randomly collected. Instead, the information is gathered through interviews and diaries kept by participants who have agreed to disclose their buying habits. The basket is divided into eight groups, food and beverages, housing, apparel, transportation, medical care, recreation, education, and communication, and other goods and services, and includes more than two hundred categories. Finally the prices of eighty thousand items in the market basket are collected monthly from thousands of retail stores, service establishments, rental units, and doctor's offices.