Definition of Cost-of-living index

The cost of living is the cost of maintaining a certain standard of living over time. A cost-of-living index, such as the United States Consumer Price Index is a price index that conceptually measures relative cost of living. Such indexes are constructed to have a value of 100 in a given year (or period, or place), the base. Other values of the Consumer Price Index are relative to the base year. An index value of 110 indicates that the cost of living is ten percent higher than in the base year. Thus, the index provides a unit-free measure of the change in the cost of living. Cost-of-living indexes are also available that allow for substitution among items as relative prices change.