Association of Chartered Certified Accountants (ACCA) Certification Practice Test

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What does the Consumer Price Index (CPI) exclude in its measurement?

Food prices
Housing costs
Utility costs
Transportation costs

The correct answer is: Housing costs

The Consumer Price Index (CPI) measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. While housing costs are a significant component of the CPI, they are not entirely excluded; rather, certain specific costs within the housing category might be treated differently or given a different weight in the overall calculation. In contrast, food prices, utility costs, and transportation costs are included in the CPI. These elements contribute to the overall cost of living and reflect changes in consumer expenditure patterns. The inclusion of various categories allows the CPI to provide a comprehensive view of inflation and can influence economic decisions, such as monetary policy and cost-of-living adjustments. Understanding what is included and excluded in the CPI calculation is crucial for interpreting inflation data accurately, and primarily, housing costs are a critical aspect considered in measuring CPI, making the statement regarding their exclusion incorrect.