Analysis: The Consumer Price Index is the official measure of inflation - here's what it does and doesn't measure, how it's calculated and what it means
We often hear about inflation in the news and feel the changing prices on our pockets, so we spoke to Anthony Dawson, Statistician in the Consumer Prices section of the Central Statistics Office (CSO), to get a better understanding of the Consumer Price Index (CPI), which is the official measure of inflation, what it is and how it's calculated.
What is the CPI and what is it used for?
The CPI is Ireland's official measure of inflation, and it tracks the overall year-on-year rate of change in the prices of goods and services that people typically buy.
As a key economic indicator, inflation - as measured through the CPI - is one of the main ways of tracking how the economy is doing. It helps government and policy makers make financial decisions and is useful when the government is deciding on changes to taxes or social welfare payments. It is also widely used in industrial relations for wage negotiations and measuring if a person’s income is in line with the rate of inflation.
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In general, people can use it in their day-to-day lives for assessing household budgets and the impact of price changes. The CSO has a Household Finances Calculator and CPI Inflation Calculator which many people find useful.
Is the CPI a measure of the cost-of-living?
No, inflation as measured through the CPI, tracks the change in the cost of goods and services, whereas the cost-of-living is different as it relates to the amount of money needed to sustain a certain standard of living by being able to afford expenses such as housing, food, taxes, and healthcare.
How is the CPI calculated?
The CSO surveys thousands of homes and businesses every year and we use the information gathered from some of our surveys to produce a standard concept of what the average Irish household buys over the course of the year. This is known as the "basket of goods and services".
We then track the price of more than 50,000 items every month, and by comparing the current price with the price of the same items in the same month of the previous year, we can calculate the annual rate of inflation figure.
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Our Consumer Price Team collects monthly price data using a range of methods such as in-person visits to shops or through online searches. We also receive retail scanner data on a weekly basis, which is everything that goes through the tills from a selection of supermarkets.
We have seen some service providers refer to the CPI when they announce price increases, however it is important to understand that the CSO compiles the CPI but does not set or decide the rate of inflation or decide on charges applied to consumers by any service provider.
Who decides what is included in the basket of goods and services?
The basket of goods and services is based on the information gathered from the Household Budget Survey where people tell us what they are spending money on. This gives us the chance to add new items that people are buying, and we can also remove items when they are not being purchased as much as before. The most recent update was in 2023, when items such as the landline telephone bill, nightclub entry, and Swiss rolls were removed. Newer tech items like smartwatches and air fryers were added as well as milk and meat substitutes, and gin.
There is a feeling that everything has become more expensive at the moment, is this reflected in the CPI?
People certainly feel things, particularly food items, are getting more expensive than the rate of inflation, and this feeling is not unfounded. If we look exclusively at food items, the rate of inflation over the past three years is 13.6%, which outstrips the overall inflation rate of 8.8% for the same period. As each household has its own unique buying patterns based on its characteristics such as the number of people living in the home, or if the home is rented or owned outright, it will have its own personal experience of inflation. This may differ from the CPI which is a measure of average inflation for all households in Ireland across not only goods, but services also.
Does the price of every item have the same importance?
Every item in the basket has a weight applied which reflects its importance to the overall household spend. For example, rent makes up almost 7% of the CPI basket, and so it has a much higher weighting than milk, which is less than 1%. This ensures that, for example, a 5% increase in the price of rent has more of an impact on the rate of inflation than a 5% increase in the price of a litre of milk. We review and update these weightings every year, based on national accounts data.
Some people think the CPI just covers grocery prices, and while they are very important, Food & Non-Alcoholic Beverages is the fourth largest weight after Restaurants & Accommodation, Transport, and Housing & Energy costs.
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Is that why shopping costs are often higher than the rate of inflation?
Yes, because while the CPI provides detailed information on changes in food costs, it is not just about food prices. People notice the price of food creeping up in the shops, because they are doing their food shopping once or twice a week and can really see a difference at the till. They may not notice that some larger expenses – maybe things that they only pay for once a year - might have actually come down in price.
People remark that a pound of butter costs approximately €5 in the shop, and how expensive it is compared with just a couple of years ago. This is true, and if you are buying a pound of butter every week, that is an annual cost of €260. Compare that with a large purchase that may have come down in price, and if this has a greater weighting on the basket of goods, this can impact the measurement of inflation. For example, the price of Home Heating Oil has fallen by 1.2% in the 12 months to September 2025, but because this is something that people might only purchase two or three times a year, we tend not to consider it when we are thinking about how inflation impacts our daily lives.
A longer version of this article is available on the CSO Website here.
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The views expressed here are those of the author and do not represent or reflect the views of RTÉ
