Which metric measures the cost of living?

• A. PPI
• B. GDP Deflator
• C. CPI
• D. Cost of Living Index

Answer: (C)

The main idea is measuring how much money households need to maintain a typical standard of living as prices change. The Consumer Price Index does this directly by tracking prices for a representative basket of goods and services that households purchase, and how those costs change over time. This makes it the best fit for “cost of living,” since it reflects the actual out-of-pocket expenses people face for everyday items.

Other indices focus on different perspectives. The PPI watches prices from the producer side, not what households pay. The GDP deflator covers price changes for all goods and services produced in the economy, not specifically the consumer market, so it isn’t a pure measure of living costs. The term Cost of Living Index is broader, but CPI is the standard, widely used measure that captures how living costs change for households.