What economic indicator tracks inflation by measuring price changes over time?

The Consumer Price Index (CPI) is a crucial economic indicator that specifically measures changes in the price level of a basket of consumer goods and services over time. This index provides insights into how inflation affects the purchasing power of consumers. By tracking the prices of a selection of goods and services commonly purchased by households, the CPI reflects the overall cost of living and helps policymakers, businesses, and individuals gauge inflation trends. Understanding CPI is vital for making informed economic decisions, as it directly influences interest rates, wage negotiations, and economic policy.

In contrast, the other options serve different economic purposes. Gross Domestic Product (GDP) measures the total value of all goods and services produced over a specific time, reflecting the overall economic health of a country, but it doesn't specifically track price changes over time. The Purchasing Managers' Index (PMI) provides insights into the economic health of the manufacturing and service sectors, based on surveys of private sector companies, but it focuses on business activity rather than consumer prices. Return on Investment (ROI) is a financial metric used to evaluate the profitability of an investment but does not relate to inflation or price tracking.