Cost-of-living index

Cost-of-living index, number or device showing how the cost of living compares at a certain time with the cost at a given time in the past, called the base period. Many governments, including the U.S. government, compute such a monthly or quarterly index in order to detect and measure inflationary influences in the economy. Many wage contracts have features that automatically raise or lower wages by a given amount as the cost of living changes. The base period is usually recent enough to make the types of goods bought roughly comparable with those offered for sale at the present time. Economists then compute what the basic collection of goods and services chosen for the base period would cost at the time of the survey. If the cost of these goods and services is set at 100 in the base period, and if the same things now cost 10.2% more, then the cost of living is now 110.2.

See also: Consumer Price Index.