Consumer Price Index
A number the government publishes that tracks how much everyday things like food and gas cost over time. When that number goes up it means your money buys a little less than it used to.
Where it is explained in full
Inflation: the quiet subtraction. A number that grows can still buy less. Real return is what you earned minus what prices did, and the arithmetic is slightly less obvious than subtraction.
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Words beside it
- direct indexing
A way to own stocks by purchasing the individual companies in an index yourself rather than buying a single fund that holds all of them.
- Index
A published list of investments, like the 500 largest US companies, used as a benchmark and copied by index funds.
- Index fund
A fund that holds the components of a published index in the same proportions, changing only when the index does.
- indexed annuity
An indexed annuity is an annuity whose growth is tied to a market index like the S and P 500, but with limits on how much you can gain or lose. It sits between a fixed annuity and a variable one.
- market index
A group of stocks or securities chosen to represent a particular market or sector, used to track how that market is performing.
- Price to earnings (P/E)
Share price divided by earnings per share. What you pay for a dollar of profit.
- seesaw analogy for rates and prices
When interest rates go up, the price of a bond goes down, and when rates go down, the price goes up, kind of like opposite ends of a seesaw. This happens because older bonds paying lower interest become less attractive when newer ones pay more.
- Strike price
The price an option lets you buy or sell at.
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