If the Consumer Price Index is imperfect, why do we use it?

This article will explain how it works.

It will also explain why it is not exact and why it can not be exact. There are other price indices, but none of them are "perfect", essentially for the same reasons.

http://en.wikipedia.org/wiki/Consumer_price_index

The Consumer Price Index (CPI) is a widely used measure of inflation and is used for various purposes, such as adjusting wages, government benefits, and contracts for inflation. While it is true that the CPI has its limitations and is not a perfect measure, it is still used for several reasons:

1. Historical Consistency: The CPI has been published consistently for a long time, allowing for historical comparisons. This long-term data series helps economists and policymakers understand inflation trends over time.

2. Simplicity: The CPI is relatively easy to understand and calculate, making it accessible to a wide range of users, including policymakers, economists, and the general public.

3. Broad Coverage: The CPI attempts to capture the overall price changes in a basket of goods and services that represents what an average consumer purchases. While it may not perfectly reflect individual spending patterns, it provides a reasonable approximation of the overall price level.

4. Standardization: The CPI methodology is standardized, meaning that it is calculated consistently across different regions and countries. This allows for international comparisons of inflation rates and cost-of-living differences.

5. Usefulness for Indexing: The CPI is used as an index to adjust various economic factors, such as wages, pensions, and social security benefits. By adjusting these payments for inflation, individuals' purchasing power can be protected over time.

Despite its imperfections, the CPI remains a widely accepted measure of inflation due to its long history, simplicity, broad coverage, standardization, and usefulness for indexing. However, it's important to note that economists and statisticians continually look for ways to improve the CPI and develop alternative measures to capture inflation more accurately.