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Definition

Cost of living

Cost of living is the amount of money needed to buy the goods and services required to maintain a specific standard of living. The cost of living is closely tied to rates of inflation and deflation.

In estimating such costs, food, clothing, rent, fuel, lighting, and furnishings as well as expenses for communication, education, recreation, transportation, and medical services are generally included.

The Consumer Price Index (CPI), a measurement of the cost of living prepared by the U.S. Bureau of Labor Statistics, tracks changes in retail prices of an average “market basket.” Changes are compared to prices in a previously selected base year, from which figures the percentage increase or decrease in the cost of living can be calculated.

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