By looking for consumables that people pay for regularly. Coincidentally, the things people pay for regularly are generally the things they need to live. But that doesn't make it a cost of living index. It is literally a consumer price index. That's what CPI stands for.
> Many categories are included in CPI, such as housing.
Indeed. The consumable portion of housing (rent, interest payments, etc.) is something most people pay for regularly, so it is ripe for inclusion. On the flip side, ignoring that a house isn't normally considered a consumable, most people will buy approximately one in their lifetime so it wouldn't be a great comparator for seeing how an individual perceives a change in value over time.
> it is intended to measure the price increases that consumers experience.
Yes, exactly, a general increase across a wide variety of goods and services comes as the result of a decline in value of the currency. There is no way to determine currency value in a vacuum, but it can be inferred this way. Which, as it happens, is what CPI gives us. Of course, there are other ways to measure inflation. Someone doing economics work will not use just a single measure of inflation as there are pros and cons to different inference methods, but CPI is the method we have settled on for the "official" rate.
> We could get nuanced about it and say that people who can't pay are not market participants, but they could be.
Demand is defined by desire and willingness. It is impossible for someone who cannot pay to have willingness, but anyone could gain the willingness at some point in the future, sure, and should that happen their demand would return. It's not a state forever set in stone. It's a dynamic state where people can come and go as conditions change. But as far as any single point in time goes...
By looking for consumables that people pay for regularly. Coincidentally, the things people pay for regularly are generally the things they need to live. But that doesn't make it a cost of living index. It is literally a consumer price index. That's what CPI stands for.
> Many categories are included in CPI, such as housing.
Indeed. The consumable portion of housing (rent, interest payments, etc.) is something most people pay for regularly, so it is ripe for inclusion. On the flip side, ignoring that a house isn't normally considered a consumable, most people will buy approximately one in their lifetime so it wouldn't be a great comparator for seeing how an individual perceives a change in value over time.
> it is intended to measure the price increases that consumers experience.
Yes, exactly, a general increase across a wide variety of goods and services comes as the result of a decline in value of the currency. There is no way to determine currency value in a vacuum, but it can be inferred this way. Which, as it happens, is what CPI gives us. Of course, there are other ways to measure inflation. Someone doing economics work will not use just a single measure of inflation as there are pros and cons to different inference methods, but CPI is the method we have settled on for the "official" rate.
> We could get nuanced about it and say that people who can't pay are not market participants, but they could be.
Demand is defined by desire and willingness. It is impossible for someone who cannot pay to have willingness, but anyone could gain the willingness at some point in the future, sure, and should that happen their demand would return. It's not a state forever set in stone. It's a dynamic state where people can come and go as conditions change. But as far as any single point in time goes...