Uses

One of the most common uses of the CPI is to adjust a sequence of values over time to take account of inflation. As an example, in New Zealand, the Consumers Price Index (CPI) is the best known measure of inflation and is used:

• By the media to inform the public of price (and cost of living) changes.
• By Government to adjust New Zealand Superannuation and unemployment benefit payments annually to help ensure that these payments maintain their purchasing power.
• By the Governor of the Reserve Bank to set monetary policy as part of the Policy Targets Agreement with the Minister of Finance that aims to keep annual inflation (an adjusted form of the CPI) movements between 1 and 3 percent over the medium term. To do this, the Governor increases or decreases the official cash rate and changes in this rate have an impact on mortgage interest rates that households pay.
• By employers and employees in wage negotiations (the main reason cited by employers for increasing pay rates is to reflect changes in the cost of living).

END USES EXPLANATION