How does the U.S. government measure inflation?

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The measurement of inflation by the U.S. government is most commonly done through the Consumer Price Index (CPI). The CPI tracks changes in the price level of a basket of consumer goods and services purchased by households. By comparing the current prices of this basket to those in a base year, the CPI provides a clear indication of how much prices have risen or fallen over time, which directly reflects inflation levels. This measure is crucial for economic policy decisions, planning for social security adjustments, and understanding overall economic health.

In contrast, the other methods mentioned do not specifically measure inflation. The manufacturing index primarily assesses manufacturing activity rather than price changes for consumer goods. Stock market trends can reflect economic scenarios but do not directly correlate with consumer price changes, as stock prices are influenced by various factors not directly tied to inflation. Evaluating employment rates, while essential for understanding economic conditions, does not provide insights into price levels or inflation. Therefore, the Consumer Price Index is the most accurate and relevant tool used by the U.S. government for measuring inflation.

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