What economic measure helps understand inflation's impact on purchasing power?

The Consumer Price Index (CPI) is the correct choice to understand inflation's impact on purchasing power. The CPI measures the average change over time in the prices that consumers pay for a basket of goods and services. It reflects the cost of living and provides insights into how inflation affects the purchasing power of money. As inflation rises, the same amount of money buys fewer goods and services, indicating a decline in purchasing power. By tracking changes in the CPI, individuals and policymakers can see how inflation is affecting the cost of living, allowing for a better understanding of overall economic conditions and individual financial well-being.

In contrast, GDP measures the overall economic output of a country but does not specifically indicate how inflation affects individual purchasing decisions. The productivity rate assesses how efficiently goods and services are produced, which can influence economic growth but does not directly reflect changes in purchasing power. The trade balance, which looks at the difference between a country's exports and imports, provides insights into international trade dynamics but is not directly related to the internal purchasing power experienced by consumers due to inflation.