• The government uses the CPI as a measurement in the movement of consumer prices.money increasing image by Vita Vanaga from Fotolia.com
  
  The Consumer Price Index, or CPI, is a tool the U.S. government uses to measure inflation as well as the purchasing power of the dollar. The government uses a group of common household goods and services in order to determine the CPI. The effect the CPI has on the purchasing power of a dollar depends on the overall changes in the price of the goods and services used to compute the CPI.
  
  

Decrease in Purchasing Power

• The purchasing power of a dollar decreases when the prices in the CPI increase. As prices of goods and services in the CPI go up, the amount you pay for those goods and services increases.
  
  

Increase in Purchasing Power

• The purchasing power of a dollar increases when the prices in the CPI decrease. As the price of goods and services in the CPI go down and the value of the dollar remains the same, you have more purchasing power. This means you can purchase more things with your dollar.
  
  

Considerations

• The government bases CPI data on prices for consumers in metropolitan and urban areas. It does not include prices for consumers living in rural areas, farmers or military personnel. The effect the CPI has on the increased or decreased purchasing power of a dollar may not affect people living in areas not included in the gathering of CPI data. For example, if the CPI shows a rise in the price of coffee, it indicates that consumers should expect a rise in the price of coffee nationally. This may not be true for people living in rural areas and military personnel, however, because the prices in those areas are not included in the gathering of CPI data.