The CPI also includes various user fees and taxes directly associated with the prices of specific goods and services. These items are then put into one of the 200 categories and weighed by their importance. Price changes of each category is estimated. Then these categories are weighted by their importance, and further aggregations are done until an overall CPI number is produced. Core CPI is less volatile than core PPI and thus is the most widely followed indicator of inflation in the United States.
Financial markets are extremely sensitive to unexpected changes in the index.
As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates accordingly. The effect ripples across stocks, bonds, and commodities often in a dramatic fashion. One problem with the CPI is that it handles technological change poorly. Thus, the CPI can overstate price changes when new technology is introduced. Also, it doesn't consider the concept of elasticity.