What does the Consumer Price Index (CPI) represent?

The Consumer Price Index (CPI) is a crucial economic indicator that captures the average change over time in the prices paid by consumers for a specific 'basket' of goods and services. This basket typically includes a variety of items such as food, clothing, housing, transportation, and healthcare, reflecting the consumption habits of households.

The CPI serves multiple purposes, including measuring inflation, adjusting income payments, and serving as an economic indicator to gauge the performance of the economy over time. By tracking the price changes in this selected basket of goods and services, the CPI provides insights into the cost of living and purchasing power of consumers.

Understanding the CPI is vital for consumers, policymakers, and economists as it influences decisions related to monetary policy, wage negotiations, and cost-of-living adjustments. The other options do not accurately describe the CPI's function; for example, it does not measure total consumer savings or government fiscal health directly, nor is it a financial tool for investing. Instead, it specifically focuses on capturing price fluctuations affecting consumer expenditures.