How does the Consumer Price Index (CPI) influence monetary policy decisions?

The Consumer Price Index (CPI) measures the average change over time in the prices paid by consumers for goods and services. When the CPI shows that prices are rising quickly, it indicates inflation, which can lead to higher costs for everyday items like food and gas. Central banks, like the Federal Reserve in the United States, use this information to decide whether to raise or lower interest rates. For example, if the CPI shows that inflation is too high, the bank might increase interest rates to make borrowing more expensive, which can help slow down spending and reduce inflation. This way, the CPI helps guide important decisions that affect the economy and people's financial well-being.