cost of living, amount of money needed to buy the goods and services necessary to maintain a specified 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. In addition to changes over time, such analyses must also consider regional variations in the cost of living, and the relative weighting of the components of the index must be reappraised periodically. The CPI is based on prices from more than 55,000 households in 85 regions of the United States and compiles and reports the information of 100,000 price quotes monthly. The first attempt to gather data on the cost of living in the United States was made by the Bureau of Labor Statistics in 1890. The dramatic increase in the rate of inflation during the 1970s led to the widespread use of cost-of-living adjustments (COLA) in wage agreements, real estate leases, and such government benefits as social security. These adjustments are often made using the CPI.

Monetary cost of maintaining a particular standard of living, usually measured by calculating the average cost of a number of goods and services. Measurement of the cost of a minimum standard of living is essential in determining relief payments, social-insurance benefits, and minimum wages. The cost of living is customarily measured by a price index such as the consumer price index. Measurements of change in the cost of living are important in wage negotiations. Cost-of-living measurements are also used to compare the cost of maintaining similar living standards in different areas. Seealso social insurance.

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